Working from home during COVID-19 has changed work as we know it. As a result, the ATO has published a new shortcut method for calculating home office expenses.
The temporary shortcut method for calculating additional running expenses has been implemented from 1 March 2020 until at least 30 September 2020 and this is subject to extension depending on when work patterns return to normal.
Expenses not deductible
If you are working from home as a result of COVID-19, you can’t claim:
- As an employee, you can’t claim occupancy expenses for example mortgage interest, rent and rates
- The cost of general household amenities such as coffee, tea or milk which may have been provided by your employer whilst at work.
- Children’s educational expenditure including desks, chairs, and buying online learning tools.
Calculating running expenses
There are three methods which can be used to calculate additional running expenses:
- Shortcut method – claim a base rate of 80 cents per work hour for all home office costs
- fixed rate method ─ claim all of these:
- a rate of 52 cents per hour worked for heating, cooling, lighting, cleaning and the decline in value of office furniture
- the work-related portion of your actual costs of phone and internet expenses, computer consumables, stationery
- the work-related portion of the decline in value of a computer, laptop or similar device.
- actual cost method ─ claim the actual work-related portion of running expenses.
A deduction of 80 cents can be claimed for each hour worked from home as a result of COVID-19 as long as you:
- are working from home to fulfil duties concerning your employment and not just carrying out minimal tasks such as periodically checking emails or phone calls
- have incurred additional running expenses in the course of working from home
This method is only available from 1 March 2020 to 30 September 2020.
It is not necessary to have a separate or dedicated area set aside for working from home using this method.
The shortcut method covers all deductible running expenses, including:
- electricity for lighting, cooling or heating and running electronic items used for work (e.g. your computer), and gas heating expenses
- the decline in value and repair of capital items, such as home office furniture and furnishings
- cleaning expenses
- your phone costs, including the decline in value of the handset
- your internet costs
- computer consumables, such as printer ink
- the decline in value of your computer, laptop or similar device.
It is not required to incur all these expenses; however, you must have incurred additional expenses in some of the categories above as a result of working from home.
By using the shortcut method to claim a deduction on additional running expenses, you are unable to claim any further deductions for working from home during that period.
When using the shortcut method, you must keep a record of the number of hours you have worked from home due to COVID-19. For example, these records can be kept as a timesheet, diary notes or rosters.
You can calculate your deduction using the shortcut method, with this formula for the 2020 financial year:
- Total number of hours worked from home between 1 March 2020 to 30 June 2020 × 80 cents.
Fixed rate method
You can claim a deduction of 52 cents for every hour worked from home rather than recording actual expenses for electricity and gas and the decline in value of furniture.
To claim a deduction using this method you must keep records of either:
- your actual hours worked from home for the year
- held a diary for a representative four-week period which shows your typical working from home pattern.
The four-week representative period can be extrapolated across the remainder of the year to calculate your full deduction amount. However, in the event your work pattern changes a new record will need to be completed.
To use this method, you must have a dedicated workspace, for example, a home office where you work from home.
This method doesn’t include the following and will need to be calculated separately:
- phone and internet expenses
- computer consumables and stationery - such as ink
- the decline in value on computers or other equipment.
To claim the work-related portion of these expenses you must keep records such as:
- receipts or other written evidence that shows the amount spent on any expenses and depreciating assets you purchased
- phone accounts which identify your work-related calls and private calls to work out your percentage of work-related use for a representative period
- a diary that shows:
- a representative four-week period for your usual work from home pattern
- any small expenses ($10 or less) that you do not have receipts for and do not total more than $200
- your work-related internet use
- the percentage of the year you used depreciating assets exclusively for work
Actual cost method
You can claim additional running costs and the decline in value of your office furniture you directly incur as a result of working from home.
This includes the following expenses:
- electricity and gas for cooling, heating and lighting
- the decline in value for home office furniture and furnishings e.g. chairs and desks
- the decline in the value of phones, computers, laptops and other similar devices
- phone expenses
- internet expenses
- cleaning (if you have an area dedicated for work)
- computer consumables and stationery – for example ink
If you do not have a dedicated workspace, such as a home office, you will typically incur minimal additional running expenses. For example, if the area you use for work is a common area of the household such as a lounge room and that area is being used by other members of your household for another purpose (such as family members watching television) whilst you are working then you won’t be able to incur any additional costs for lighting, heating or cooling as a result of working in that room.
All expenses related to work from home should consider if any other members of your household utilise the dedicated workspace, in the event of this your expenses must be apportioned accordingly.
To work out your actual expenses for your dedicated work area, you can:
- Retain records showing your actual number of hours worked from home during the financial year
- Hold a diary for a representative four-week period to show your typical working from home patterns
- Calculate the decline in value of your depreciable assets and:
- Retain receipts which show the amount you spent on the assets
- Work out the percentage of the year in which you used the depreciating assets exclusively for work purposes – you can claim a deduction on the proportion of the decline in value which is related to your work-related usage of the depreciating assets
- Calculate the cost of your cleaning expenses (if you have a dedicated workspace) by adding together your receipts related to cleaning and multiplying it by the floor area of your dedicated workspace.
- Floor area of the dedicated work area ÷ whole area of the house as a percentage
- Your claim should apportion for any
- Private use of your home office
- Use of the dedicated space by other people e.g. family members
- Calculate the cost of your heating, cooling and lighting by working out the following:
- The cost per unit of power used – refer to your utility bill for this information
- The average units used per hour – the power consumption per kilowatt-hour for each appliance, equipment or light used
- The total annual hours used for work-related purposes – refer to diary completed, or your record of hours worked.
If an asset cost $300 or more, in order to claim a deduction, you must calculate the decline in value for both the period you:
- Owned the assets during the financial year
- Used the assets for work-related purposes
Requirements for a change in circumstances
Any method chosen to calculate expenses for working from home will require you to keep records.
In the event your circumstances change partway through the financial year – for example, your typical pattern of work from home changes – you will need to keep separate records to show this change.
If you use the four-week representative period to calculate usage over the financial year, you will need to either:
- Prepare a new four-week representative period to show your usage under your new circumstances
- Keep separate records for the period your circumstances changed.
For example, if you usually work from home one day a week and due to an emergency, such as COVID-19 you're required to work from home for a period, you will need to keep separate records for both situations. This includes:
- The actual hours you worked from home as a result of the emergency
- Your typical working from home arrangements.
Your four-week representative period will no longer be valid in these circumstances.
Phone and Internet expenses
You may be able to claim a deduction for your work-related usage of your phone and internet expenses (if you are not using the shortcut method). To claim these costs, all the following must apply:
- You spent the money yourself
- The expense is directly related to earning your income
- You must have evidence to support your claim
You can’t claim deductions when you haven’t incurred any expenses, or you were reimbursed for any costs by your employer.
You can’t claim a deduction on phone or internet when using the shortcut method. This is because the 80 cents rate covers any deductions for phone and internet.
If you use your phone or internet for both work and private use, you will need to work out the percentage that relates to your work use.
When you can’t claim a deduction for your phone
Employer provided phone
If your employer provides you a phone for work and they are billed for your usage (phone calls, text messages and data) then you won’t be able to claim a deduction. Similarly, if you pay for your usage but receive reimbursement from your employer you can’t claim a deduction.
Costs you incur before work commences
If you are using your phone in the process of seeking employment you can’t claim a deduction as you are not yet generating any income from your phone use.
Similarly, if you are a casual employee and your employer calls you to ask you to work, or you call them to check on work availability, you are not entitled to a deduction. This cost is not considered directly related to your income producing activities, but instead is an activity that is placing you in a position to earn that income.
You can only claim a deduction for your phone use when you’re earning assessable income and your employer requires that you use your phone directly in the process of earning income.
If you are using the shortcut method.
Calculating work use of your phone
As there are many different types of plans available, you will need to determine your work use using a reasonable basis.
If your work use is incidental and you are not claiming a deduction greater than $50 in total then you may make a claim using the following, without having to analyse your bills:
- $0.25 for work calls made from your landline
- $0.75 for work calls made from your mobile
- $0.10 for text messages sent from your mobile.
Usage is itemised on your bills
If you have a phone plan with an itemised bill, you need to work out your percentage of work use over a four-week representative period, which can then be applied to the full year.
The percentage must be calculated using a reasonable basis. This can include the:
- Number of work calls made as a percentage of total calls
- Amount of time spent on work calls as a percentage of total call time
- Amount of data downloaded for work purposes as a percentage of your total downloads.
Usage not itemised on your bills
If you have a phone plan where you don’t receive an itemised bill, you can determine your work use by maintaining a record of all your calls over a four-week representative period and then calculating your claim using a reasonable basis.
Bundled phone and internet plans
Phone and internet services are occasionally bundled together. If you are claiming a deduction for work-related use of one or more services, you will need to apportion costs based on your work-related use for each service.
If other members of your household use the services, their use will need to be considered in your calculation.
If you have a bundled plan, you need to identify your work use for each service over a four-week representative period during the income year. This will allow you to determine your work use pattern, which can then be applied to the full year.
A reasonable basis to work out your work-related use could include:
- The amount of data downloaded for work as a percentage of the total data downloaded by all members of your household
- Any additional costs incurred as a result of your work-related use, for example, if your work-related use results in you exceeding your monthly cap.
- The number of work calls made as a percentage of total calls
- The amount of time spent on work calls as a percentage of your total calls
- Any additional costs incurred as a result of your work-related calls, for example, if your work-related use results in you exceeding your monthly cap.
Deduction on purchase of an electronic device
If you bought a smartphone, tablet or other electronic device and you use it for work you can claim a deduction for a percentage of its cost (if you are not using the shortcut method).
Occupancy expenses include
- Mortgage interest
- Property insurance
- Land tax
Employees are generally not able to claim occupancy expenses. They can be claimed in two limited circumstances where:
- The area used in the home is dedicated to a place of business and is not suitable for domestic uses e.g. a hairdresser studio in the home.
- No other work location is provided to an employee by an employer and the employee is obligated to dedicate a portion of their home as an office – any costs related to the identified place of business can be claimed.
If you claim occupancy expenses, you are unable to qualify for the capital gains tax (CGT) main residence exemption for the portion of your home which is used for the business. If you use your home as a place of business, there may be CGT implications if the property is sold.
Calculating occupancy expenses
If you are eligible to claim occupancy expenses, they can be calculated by using the following formula:
Total expenses × floor area × percentage of year that part of your home was used exclusively for work
For example, if the area you use for work takes up 10% of your home and you used it for work purposes for the entire year, you will be able to claim 10% of your occupancy expenses.