Hien Hoang: 0448 012 728 and Brian Spurrell: 0412 011 946

Last month this column explained the importance of getting your deductible expenditure records in order to ensure you maximize your work related deductions and focused on the two options available for claiming work related motor vehicle expenses. This month’s column will explain the three alternative methods available for claiming home office expenses at label D5 in your tax return.

During the financial year 1/7/21 to 30/6/2022 many of you will have been required to work from home or elected to work from home and most likely have incurred significant additional expenses.

Taxation of financial support from employers.

You may have received financial support either by way of reimbursement of specified costs such as Zoom software or computer/office equipment, or by way of a specified allowance.

Employer reimbursements for out of pocket home office expenses are neither treated as assessable income or the expenses claimable as allowable deductions.

The provision of an employee working from home allowance will appear on your income statement provided by your employer or available from your ATO myTax account. This allowance is taxable income and must be disclosed in your tax return in the salary or wages section in the box labelled Allowances. In order to offset the tax on your allowance you will need to claim deductions at D5 for the actual costs you have incurred.

Alternative options for claiming working from home expenses.

a) The temporary COVID hourly rate of 80 cents per hour method.
This is a simple method and is one of three ways available for calculating these expenses, requiring minimal record keeping and has applied from 1st March 2020 to 30 June 2022 and I expect it will be extended to 30 June 2023. If you elect to use this method you need to enter ‘COVID hourly rate’ in the Description box, the letter H in the expense type box and enter 100 in the business % box. You should also indicate in the space provided how you derived the number or hours worked.

The 80 cents rate per hour covers all costs associated with working from home, including heating and cooling, electricity, cleaning, mobile phone, internet, computer consumables and depreciation of office furniture and equipment. You cannot claim separately any other costs of working from home.

Apart from simplicity the other advantages of this method are:

  • You don’t need to have a separate or dedicated area of the home set aside for working as a private study.
  • If the household has more than one resident working from home they can also claim under this method.
  • The only records required to be kept are time records such as diary records, timesheets, rosters or employer documents setting out required working hours and dates you commenced and ceased working from home.

b) The 52 cents per hr rate plus expenditures not included in the hourly rate.
This alternative method prevailed prior to 1st March 2020 and is still available and may be preferred when there are significant costs incurred which are not fully recovered in the hourly rate.

Home office expenses covered in the 52 cents hourly rate are running expenses including electricity and gas and depreciation of office furniture. Other costs that may be claimed separately include office stationery and supplies, telephone and internet, and depreciation of office equipment such as computers, printers, scanners etc.

A disadvantage of this method however is that you will need to apportion the costs not covered in the 52 cents rate between work-related usage and private usage. For guidance on acceptable methods for apportioning phone, computer and internet expenses go to the ATO website and google document QC 46119.

This method which prevailed prior to 1st March 2020 is often favoured because it avoids the need to record and apportion gas and electricity and may regain popularity again once the 80 cents COVID hourly rate ceases to be available.

c) The actual expenses method.
This method may be used as an alternative to claiming 52 cents per hour for running expenses such as lighting, heating, cooling and cleaning. You will need to work out the floor area of the part of your home that is used exclusively for work purposes and calculate that as a percentage of the total floor area. Next work out the percentage of the year you have used your dedicated work area or study for work related purposes after allowing for days in the year the work area was not utilised due to weekends, holidays or illness and then apply the reduced percentage to the amount of each of the above running costs.

Example: Annual electricity cost is $5,600, the study area as a proportion of total floor area is 12%. Total weeks the study was used for work purposes after allowing for 4 weeks holidays and one week for illness = 47/52 = 90%. Therefor the deductible portion of the annual electricity bill claimed would be (5600 * .12) * .90 = $605.

If you are unable to quantify your deductible home office expenses using either the 52 cents per hr method or the actual expenses method, opt for the 80 cents method, but make sure you can demonstrate how you arrived at the number of hours you worked at home.

If you have significant running costs or insufficient expenditure records, then you may prefer to substitute the 52 cents hourly rate to avoid apportioning your running costs. However you will still need to work out the deductible portion of all other home office costs.

If you elect for the actual expenses method you must have records to show how you have calculated the work related portion and have evidence of the costs incurred.

Claiming home office expenses is one area of your tax return where diligence on your part in retaining records and opting for the method that gives you the highest deduction may be well worth the effort.

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.
Brian Spurrell B A, B Com, Dip Ed, FCPA, CTA, Registered Tax Agent.
Director, Personalised Taxation & Accounting Services Pty Ltd
PO Box 143 Warrandyte 3113 Ph: 0412 011 946
Web: www.ptasaccountants .com.au