The Australian Taxation Office (‘ATO’) has announced a temporary simplified short cut method to make it easier for individual taxpayers to claim deductions for additional running expenses incurred (e.g., additional heating, cooling and lighting costs), as a result of working from home due to the Coronavirus pandemic. Refer to the ATO’s Media Release of 7 April 2020.
Based on the announcement, the ATO will allow individuals to claim a deduction for all running expenses incurred during the period 1 March 2020 to 31 December 2020, based on a rate of 80 cents for each hour an individual carries out genuine work duties from home.
The 80 cents per hour method is designed to cover all deductible running expenses associated with working from home and incurred from 1 March 2020 to 31 December 2020, including the following:
- Electricity expenses associated with heating, cooling and lighting the area at home which is being used for work.
- Cleaning costs for a dedicated work area.
- Phone and internet expenses.
- Computer consumables (e.g., printer paper and ink) and stationery.
- Depreciation of home office furniture and furnishings (e.g., an office desk and a chair).
- Depreciation of home office equipment (e.g., a computer and a printer).
It is important to understand that if you choose to use this method you cannot make separate claims for any of the above running expenses (including depreciation of work-related furniture and equipment) over and above the per hour claim.
As a result, using the 80 cents per hour method may result in your claim being lower than it could be under the original home office claim arrangements. As such, it will be prudent for you to consider your options before finalising your claim for your 2020 income tax return.
The appeal of the temporary 80 cents per hour method comes from the simple application of the calculation along with the following:
(a) there is no requirement to have a separate or dedicated area at home set aside for working (e.g., a private study);
(b) multiple people living in the same house can claim under this method (e.g., a couple living together could each individually claim running expenses they have incurred while genuinely working from home, based on the 80 cents per hour method); and
(c) an individual will only be required to keep a record of the number of hours worked from home as a result of the Coronavirus, during the claimable period. This record can include time sheets, diary entries/notes or even rosters.
This temporary shortcut arrangement will be in place from March 1 to June 30, anything before this date bracket must use the pre-existing working from home approach. As for after this date, the ATO will review this arrangement for the next financial year as the COVID-19 situation progresses.
Prior to the temporary shortcut arrangement being established, the available methods for calculating working from home running expenses were limited to either:
The Fixed Rate Method where you can claim each of the following:
- a rate of 52 cents per work hour 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, and
- the work-related portion of the decline in value of a computer, laptop or similar device.
The Actual Cost Method which allows you to claim the actual work-related portion of all running expenses. The calculation of running expenses needs to be completed on a reasonable basis and you must retain receipts for the expenses along with records showing work-related use.
These two methods are still available along with the temporary short cut method.
For assistance with assessing the best method for you to use in order to maximise your 2020 tax return claim contact our office and speak with our individual tax return specialist Delila. Call us on 03 52216399 or email us at firstname.lastname@example.org for more assistance.
Disclaimer: this information is of a general nature and should not be viewed as representing financial advice. Users of this information are encouraged to seek further advice if they are unclear as to the meaning of anything contained in this article. Davidsons accepts no responsibility for any loss suffered as a result of any party using or relying on this article.