With a lot of us working from home during the start of 2020, the Government has given us more ways of calculating our deduction for home office expenses. Here is a guide from our Tax Clinic to help you choose the right method for your circumstances.

1. COVID–19 method

Due to the impact of COVID–19 on Australian workplaces, many employees were required to work at home for the first time.  The Government has introduced a “shortcut method” to calculate a tax deduction for expenses incurred while working from home. This method is temporary and only covers expenses incurred during the period 1 March to 30 June 2020. All employees working from home during that period can use this method, even if you are not normally allowed to work from home.

Using this method, you can claim 80 cents per hour for each hour you worked from home during the period 1 March to 30 June 2020. This rate covers all expenses related to creating an office environment in the home.

You can choose to use this rate if you:

  • have been working from home to fulfil your employment duties, and 
  • have incurred additional running expenses as a result of working from home.

The shortcut method covers all of your work from home expenses, such as:

  • telephone expenses
  • internet expenses
  • the decline in value of equipment and furniture such as your own computer and printer
  • electricity and gas for heating, cooling and lighting.

You do not need to have used a dedicated work area to use this method. You may have used your dining room table and worked in the main living room, rather than a dedicated office in the home. However, you must keep a record of the number of hours you have worked from home. This could be a timesheet, roster, a diary or documents that set out the hours you worked from home and it advisable that you recorded the time each day if possible.

If you use this method, you cannot claim any other expenses for working from home. For example, if you bought a new computer to use during this period for say $2,000 and it has an effective life of 4 years, then your depreciation deduction would be $334 for the period of 4 months. This method may not be the best for you. ($2,000 x 50% x 122/365 = $334) 

You do not have to use the COVID method and you can choose to use one of the following two methods to calculate your tax deduction. You can use the method that will give you the best financial outcome, so long as you satisfy the work requirements of your employer and keep the appropriate record for each method.

If you were required to work from home before 1 March 2020, or your tax deduction would be greater than the shortcut method, then you will need to use one of the following methods to calculate your deduction for the period 1 July 2019 to 30 June 2020.

2. Fixed-rate method

You can claim a deduction of 52 cents for each hour you work from home for the work-related expenses you incur. The fixed-rate covers all the following expenses:

  • the depreciation deduction for the decline in value of home office furniture and furnishings – for example, a desk
  • electricity and gas for heating, cooling and lighting
  • the cost of repairs to your home office equipment, furniture and furnishings.

To claim using this method, you must keep records of either:

  • your actual hours spent working at home for the year
  • a diary for a typical four-week period to show your usual pattern of working at home, recording your working hours.

You can apply the four weeks across the remainder of the year to determine your full deduction amount. 

For example, if your workday consisted of 8 hours per day, including a break for lunch, and you worked from home for 3 days, then your typical four weeks would be 96 hours at 52 cents per hour, equalling about  $50 per four weeks, or $12.50 per week. If you use these figures to calculate your deduction over a full year (assuming four weeks annual leave) the total deduction would be 48 x $12.50 = $600. However, if your work pattern changed over a period, you would need to amend your work hours.

To use this method you need to have a dedicated work area, such as a home office, when you work from home.

This method does not include the following, so you will need to separately calculate your work-related use for them:

  • telephone expenses
  • internet expense
  • computer consumables and stationery depreciation deduction for the decline in value of your equipment such as your computers, printers and laptops.

To claim the work-related portion of these expenses you should maintain your financial records such as:

  • receipts or other written evidence that shows the amount spent on expenses and depreciating assets you purchased
  • telephone accounts identifying your work-related calls and private calls to work out your work-related during your work period. 

3. Actual cost method

Under the actual expenses method, you can claim the running costs you directly incur as a result of working from home. This may include the following expenses, which are similar to those in method 2:

  • electricity and gas for cooling, heating and lighting
  • the depreciation deduction for the decline in value of home office furniture (desk, chair) and furnishings, the decline in value of telephones, computers, laptops or similar devices
  • telephone expenses
  • internet expenses
  • cleaning (if you use a dedicated area for working)
  • computer consumables and stationery – such as ink.

If you do not have a dedicated work area, you will generally only incur minimal additional running expenses -for example, if the area you use for work is a common area of the home such as a lounge room. 

To calculate the work-related portion of your actual expenses you must have records. You can:

  •  keep a record of the number of actual hours you work from home during the income year

  •  keep a diary for a representative four-week period to show your usual pattern of working at home

  •  work out the decline in value of depreciating assets and  

  • work out the cost of your cleaning expenses if you have a dedicated work area – for example, a room set up as a home office 

  • work out the cost of your heating, cooling and lighting by working out the cost per unit of power used, the average units used per hour, the total annual hours used for work-related purposes.

  • work out the cost of your phone or internet plan expenses and you need to determine your percentage of work use over a four-week representative period. 

  • work out the cost of computer consumables and stationery by keeping receipts for the items purchased.

You must consider other members of your household when you calculate your expenses. If a member of your household is using the same area of the house or the same service when you are working, you must apportion your expenses accordingly.

To claim a depreciation deduction for an asset that cost $300 or more, you need to calculate the decline in value for both the period you:

  •  owned the assets during the income year, and

  •  used the assets for work-related purposes.

Please note that if you spent under $300 on buying a printer, computer equipment, a desk or chair that was being used for your employment purposes then you are entitled to claim the total cost as a deduction. (Section 40-80(2), Income Tax Assessment Act 1996 )

Claiming a tax deduction for expenses for a home-based business – not an employee

A home-based business is one where your home is also your principal place of business. That is, you run your business at or from home, and have a room or space set aside exclusively for business activities. If you operate some or all your business from your home, you may be able to claim tax deductions for home-based business expenses in the following categories:

  • occupancy expenses such as mortgage interest or rent, council rates, land taxes, house insurance premiums

  • running expenses such as electricity, phone, a decline in value of plant and equipment, furniture and furnishing repairs, cleaning

  • the expenses of motor vehicle trips between your home and other locations if the travel is for business purposes.

When you sell your home, you may have to pay capital gains tax (CGT). It is important to keep the right records to work out your deductions or CGT.

The University of Tasmania, Tax Clinic proudly provides communities with free professional tax services. For further information and tax advice, please email Tax.Clinic@utas.edu.au

(The above information is based on information obtained from the Australian Taxation Office)