We are all living in a period of great uncertainty and not the least of which is the constant barrage of daily releases of new government assistance to individuals, employees and business plus regular updates aimed at clarifying or adding to earlier information releases.
If you are working from home either under instruction from your employer, or running your own business out of home then this month’s column should be of interest to you.
If you have not read the April column titled COVID-19 Tax Update on Working from Home, may I suggest you read that in conjunction with what follows. You will find the previous article by accessing Warrandyte Diary: Homepage/ editions/April 2020 and scroll down to page 10. Alternatively you may access the article on our website www.ptasaccountants.com.au
The New Fixed Rate per hour method
In a media release on 7th April the ATO announced a temporary simplified short cut method to make it easier for individual taxpayers to claim deductions for additional running expenses incurred such as additional heating, cooling and lighting expenses as a result of working from home due to the Coronavirus pandemic.
Based on this announcement and further detailed in the ATO release entitled “Working from home during COVID-19” updated on 15th April 2020, the ATO advised it will allow individuals to claim a deduction for all home office running expenses incurred during the period from 1st March until at least 30 June 2020, based on a rate of 80 cents for each hour an individual carries out genuine work duties from home.
This is an alternative method to claiming home running expenses under existing arrangements explained in my April edition article being 52 cents per hour for heating, cooling, lighting and office furniture depreciation.
What is covered in the new 80c per hour option?
The new 80c per hour method is designed to cover all of the following running expenses associated with working from home and incurred from 1st March 2020
- Electricity and gas expenses associated with heating, cooling and lighting the area at home which is being used for work purposes.
- Cleaning costs for a dedicated work area such as a home office.
- Phone and internet expenses.
- Computer consumables such as printer paper, ink cartridges and stationery.
- Depreciation of home office furniture and furnishings such as an office desk and chair, filing cabinets and bookcases.
- Depreciation of home office equipment such as a computer, printer and scanner.
Advantages of using the 80c per hour method
Under this method whilst separate claims cannot be made for any of the above running expenses which could be substantial, the advantages of using this method from March 1st are as follows:
- No record keeping is required other than a record of the number of hours you have worked from home as a result of COVID-19 such as timesheets, diary notes or rosters.
- There is no requirement to have a separate or dedicated area at home set aside for working such as a private study.
- Multiple people living in the same house could claim under this method at 80c per hour excluding school students of course.
Implications of not electing to use the 80c per hour method
- You may elect to continue to use the 52c per hour method that was available from 1st July 2019, but that rate will only apply to running expenses for heating, cooling, lighting and furniture depreciation from the above list.
- You will still have to undertake an analysis of the work related percentage of all of the remaining running expenses.
- You will have to continue to maintain records of expenditure and retain all supporting documents as well as a time usage diary.
- If you elect to use neither of the 52c or the 80c per hour methods then you will have to resort to the actual expenses method for all expenses which is explained in detail in the April edition article and have a dedicated work area or study set aside for work purposes.
- If you are working from home only due to the consequences of COVID-19 you can’t claim occupancy expenses such as mortgage interest, rates, insurance, land taxes or rent.
Implications for the preparation of your tax return
Regardless of whether you use a tax agent or prepare your tax return yourself, if you have or will have spent significant time working from home you have to decide which of the three methods of claiming home office expenses you will elect to use for the period from 1st March to 30 June 2020 and which of the two methods, 52c per hour or actual expenses method for the prior eight months.
If you elect to use the 80c rate you or your tax agent must include the note “COVID- hourly rate” in your tax return.
A word of advice
For many of you who have or will have spent a considerable amount of time working from home, it may well be worth devoting your time to:
- Documenting the hours you have worked at home for work related purposes or as a requirement from your employer or in running your own business from home.
- Recording and filing all necessary supporting documents relating to allowable home office deductions.
- Working out the percentage split between private and work related portions of jointly incurred costs.
- Armed with this information you or your tax agent should then be able to determine which of the three methods will deliver the greatest deductions for the eight months to 29th February and the four months to 30th June 2020.
- The ATO will be anticipating a significant increase in both the number and the amount of home office expenses claims for 2020 and consequently you can expect a much higher level of scrutiny of your claim.
The content of this article is not intended to be relied upon as professional advice and should not be used as such. If you have any questions you should consult a registered tax agent. Further information on claiming work related expenses and the COVID-19 Government Assistance to Business and Individuals updated to 24th March 2020 is available on our website.
Brian Spurrell FCPA, CTA, Registered Tax Agent.
Director, Personalised Taxation & Accounting Services Pty Ltd
P O Box 143 Warrandyte 3113. Ph: 0412 011 946
Web: www.ptasaccountants .com.au