Tax Tips: WFH
With many individuals having to work from home (WFH) for extended periods of time through the 2021 FY it is helpful to understand what home office deductions can be claimed.
The ATO has reminded taxpayers of the 3 different methods to calculate home office expenses:
Temporary shortcut method - an all-inclusive rate of 80 cents per hour for each hour you work from home. To claim this method a record of actual hours worked must be maintained.
Fixed rate method - a rate of 52 cents for each hour you work from home for the heating, cooling, lighting and cleaning of the dedicated work area and the decline in value of office furniture and furnishings. To claim this method a record of actual hours worked must be maintained. Then calculate the work-related portion of telephone and internet expenses, computer consumables, stationery and the decline in value of a computer.
Actual cost method - the actual work-related portion of all running expenses, which needs to be calculated on a reasonable basis. Receipts or other written evidence that shows the amount spent on expenses and depreciating assets must be kept.
Taxpayers opting to use the temporary shortcut method will not be able to claim individual expenses such as phone and internet costs as well as the decline in value of new office furniture as the 80 cents per hour is designed to capture all of these costs.
Now let’s take a look at two examples of calculating the WFH deductions allowable using each method:
Example 1
Jack works from home 40 hours per week. His work supplies him with a laptop, internet and a phone. Jack was only required to purchase a printer for his office at home.
Traditional method (combination of the Fixed/Actual methods)
Here’s what Jack can claim:
40 hours per week x 52 cents x 48 weeks = $998.40
Purchase of printer = $280.00
Jack’s total work from home claim = $1,278.40
Temporary shortcut method
Here’s what Jack can claim:
40 hours per week x 80 cents x 48 weeks = $1,536.00
Jack’s total work from home claim = $1,536.00
Example 2
Alison works from home 40 hours per week. She must supply her own phone, internet, office equipment and laptop to perform her work. She keeps track of her phone, internet and laptop business use for the year. Alison works out that 60% of her phone use is work related and 70% of her internet and laptop use is work related.
Traditional method (combination of the Fixed/Actual methods)
Here’s what Alison can claim:
40 hours per week x 52 cents x 48 weeks = $998.40
Purchase of printer = $280.00
70% of her laptop purchased $2,000* = $262.50
60% of her $80 phone bill x 12 months = $576.00
70% of her $100 internet bill x 12 months =$840.00
Alison’s total work from home claim = $2,956.90
*As the laptop is greater than $300 a deduction can only be claimed for the decline in value across the useful life of the asset (18.75% for the first year and 37.5% for every year thereafter).
Temporary shortcut method
Here’s what Alison can claim:
40 hours per week x 80 cents x 48 weeks = $1,536.00
Jack’s total work from home claim = $1,536.00
As we can see in both examples, each method will be more or less beneficial to individual taxpayers depending on their working situation. It is a good idea to start thinking about what method may be more beneficial in your own situation.
If you have more questions about what you may be able to claim for the 2020/21 tax year please get in contact with us. Also head to our Resources section to access our 2021 Tax Return Checklist to assist you in compiling information for your tax return.