With less than three months until the end of the financial year, now is a good time to ensure you are fully prepared for maximizing your work related deductions without exposing yourself to the possibility of a tax audit.
Irrespective of whether you use a registered tax agent or you prepare your own tax return, you can only claim work related deductions at items D1 – D5 if you meet the following requirements:
- you have actually spent the money or incurred the cost,
- the deductions you are claiming were directly related to the earning of your assessable income and
- you have a record to prove your claim.
This month’s column will explain how to claim home office expenses when the nature of your employment results in you needing or choosing to carry out employment or work related activities at home.
Such activities must result in you incurring additional or incremental expenditure because of your work related activities. Ideally you should have a separate room set up as a home office or is used predominantly for work related activities. If this is not the case but you undertake a work activity in a room where for example other members are watching TV, it may be far more difficult to claim you have incurred incremental costs for expenses such as gas or electricity.
There are three acceptable methods for claiming your home office expenses:
a) The cents per hour method
For the 2019 tax year the ATO has increased the rate to 52 cents per hour. You will need to keep a diary record over a representative four-week period of your work related usage and then annualize the usage hours after allowing for days/weeks in the year when there was no work related activity, such as annual leave, sick leave or public holidays. This is the quick and easy method you can use to cover electricity, gas and depreciation of office furniture and you still have time to get your four week record in place.
b) The proportion of actual costs method
Under this method you will need to apportion the cost of all of your home office related expenses between the work related portion and the private usage portion. It is a more onerous and time consuming method requiring the retention of all supporting invoices, receipts and supporting calculations. You also need to be able to justify the methods you have used calculate the deductible percentage.
The floor area percentage occupied by the home office is a reasonable basis for allocating cleaning, gas, electricity and rent if you are renting your home.
Other costs such as your internet and home telephone, if significant, should be apportioned on a relative time basis using a representative four week period during which work related usage is logged and calculated as a percentage of total usage.
Recently the ATO has offered the alternative to calculating usage of electronic devices of claiming up to $50 for the year with limited documentation.
A further alternative is to keep basic records of work related phone calls based upon rates of 25 cents per call from a landline, 75 cents per call from a mobile and 10 cents per text message.
c) The combination method
Under certain circumstances you may choose a combination of the above two methods where the outcome may result in a significantly higher deduction. In other words use the 52 cents per hour method to cover gas, electricity and depreciation of office furniture, the $50 claim for internet usage and the proportionate method for cleaning, telephone, depreciation of office equipment such as computers and printers and if renting your premises then also include the proportion of rent relating to the home office area.
A Word of Warning
If you own your own home think carefully before claiming a share of fixed costs such as municipal and water rates, mortgage interest or home insurance as claiming these costs may expose your property to a business use proportion of any future capital gain on sale of the property which you may prefer to avoid. As always, if in doubt about how and what to claim, seek advice from a registered tax agent.
The content of this article is not intended to be used as professional advice and should not be used as such.
Brian Spurrell FCPA, CTA, Registered Tax Agent, is Director of Personalised Taxation & Accounting Services Pty Ltd. PO Box 143 Warrandyte 3113. Mobile: 0412 011 946,
Email: firstname.lastname@example.org, Web: www.ptasaccountants.com.au