In our changing world more of us are now choosing to undertake work at home either as an extension of our employment duties or as a basis for running a small business or generating some rental income. Due to both the complexity and the importance of understanding the tax implications, this topic will be split into three parts spread over the next three monthly editions of The Diary as follows:
Part A: Splitting work time between home and place of employment – August.
Part B: Operating a business from home – September.
Part C: Renting out part of your home – October.
When choosing to take work home or negotiating flexibility to undertake work at home it is usually necessary to set aside either an area of a room for a work place or preferably a separate room to serve as a home office. As the activity undertaken may be either directly or indirectly work-related, the costs you incur as a consequence must satisfy the requirements for tax deductibility.
It is important to distinguish between different categories of costs that may be claimable as tax deductions. Also what expenses you can legitimately claim will depend upon whether you merely have a work area in a shared room or a separate room setup as a home office.
Running costs
These are incremental costs that are only incurred as a consequence of utilising space in a shared room or a home office room. Typically these are costs for heating, cooling, lighting and cleaning costs. You can also claim deductions for furnishings such as a desk, office chair, bookshelf and filing cabinet and also items of office equipment including computers, printers and repairs to these items. Where the cost of these items are $300 or less you can claim the full cost, otherwise their cost must be depreciated at the set rate. Other running expenses you can claim include computer software, printer cartridges and stationery items.
You must have evidence that the expenses have been incurred such as invoices, credit card payment receipts and be able to demonstrate how you have calculated the work related proportion of shared expenses and the nature of the connection between the expenditure and your employment duties.
Calculating Running Costs
a) Using the ATO set rate of 52 cents per hour
You can avoid the chore of recording your actual expenses for heating, cooling, lighting and determining the value to claim for your office furniture by claiming 52 cents per hour you have worked at home on employment related activities. The ATO raised this rate from the previous rate of 45 cents to apply for the 2019 tax year.
To claim your deductions using this method you need to keep a record of the actual hours you have worked at home for the year or keep a diary for a representative four week period.
Don’t forget to separately work out and claim your expenditure on phone and internet usage preferably using a representative four week period to record number of calls and internet time. The ATO has advised that you can claim up to $50 with limited documentation based upon diary records rather than invoices for phone usage based on the following rates:
25c for calls from your landline
75c for calls from your mobile
10c for text messages sent from your mobile
For all other running costs such as computer expenses, stationery and consumables, repairs to furniture and equipment, books and journals etc., claim them separately at the relevant work related item category based on your invoices or receipts.
b) Actual expenses method
To assist taxpayers who elect not to use the set rate of 52 cents per hour method for claiming your incremental cost of heating, cooling and lighting, the ATO in its guide to claiming home office expenses has explained how to calculate your actual cost as follows:
- determine your cost per unit of power used (normally kwh) by referring to your utility bill
- determine the average units used per hour being the power consumption per kwh for each appliance, item of equipment or light used
- the total annual hours used for work related purposes as per your diary record
- adjust your total hours for use of your home office or work area by other members of your household and apportion your expenses accordingly.
Now if you haven’t fallen off your chair by now and you have the mind of an electrical engineer, go for it. But if not, may I suggest that unless you spend a significant portion of your time working from home such as writing text books, training materials or policy and procedures manuals etc., please save yourself all of this bureaucratic effort and opt for the 52c per hour method.
Finally, a warning
The ATO has committed substantial funds to auditing both personally lodged and tax agent lodged tax returns in response to research that has discovered mass over claiming on unjustified work related expenses, including home office expenses. Irrespective of whether you use the services of a tax agent or not, ultimately the responsibility for justification of your work related deductions lays with you the taxpayer.
Disclaimer:
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: bspurrell@ptasaccountants.com.au, Web: www.ptasaccountants.com.au
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