There’s nothing new about Working from Home, but the you-know-what of 2020 made WFH almost as ubiquitous as ‘you’re on mute.’ As a result, there are a raft of tax deduction opportunities – and obligations – for when work involves a 30 second commute.
Here at Kennedy King, we have a hybrid model of working. Some of us are full time at KK HQ, either our Hawthorn or our Geelong offices or sometimes both, some of us are part time, some of us work from home as the norm, while others as a once-off. We’re not alone, with a recent study by Seek indicating that 11 times more ads mentioned WFH or hybrid working as an employment perk than the previous twelve months. As an employer, we’re excited by the possibilities and potential that this flexibility in work practices offers, and of course, as finance experts, we’re doubly excited about how we can share how the tax system can benefit people working from home.
The first thing that people seem to neglect when it comes to lodging a tax return is failing to consider the incidental expenses they incurred while earning their income. As we all know thanks to Paul Kelly, no less, from little things, big things grow. What are all the little things that you spend money on that contribute to earning your income? It’s these little things that should be recognised when your income is being taxed.
In terms of working from home, there’s a specific deduction, with two methods of calculation – Actual Cost and Fixed Rate. However, please be advised that the Covid Rate Method (detailed below) was extensively optioned for a number of financial years as a response to the numerous lockdowns:
Covid Rate Method:
This was introduced in 2020 to be an all-inclusive method that covers working from home expenses. It was calculated by number of hours worked from home x $0.80 and when people opted to use the covid rate, they could not also make a claim for their mobile phone, internet or a new laptop or other office equipment.
The Covid Rate is no longer available and so a significant part of our work is educating our clients on what they are eligible to claim, which methods are available to them and the benefits it brings to them personally.
Actual Cost Method:
The actual cost method allows you to claim the actual costs of all expenses you incurred whilst earning your income from home. This can include heating, lighting, mobile phone and internet. The requirement is that you must have a dedicated home office and be able to justify the consumption for your home office in comparison to your whole house.
It’s sometimes considered a harder method as taxpayers are required to keep substantial record keeping that calculates their actual expenses incurred to produce their income while working from home, BUT it does allow for a greater deduction. It includes elements like cleaning expenses, heating, cooling, lighting, phone, data and internet, computer and tech consumables as well as decline in value of depreciating assets such as a work desk, ergonomic chairs or laptops. The record-keeping requirements for this method (here’s a handy ATO reference) include a diary for a 4-week period of working from home to show your pattern as well as a record of the actual hours worked from home during the year.
Fixed Rate Method:
This is a more popular method in terms of take up by taxpayers. It may mean claiming less than the actual cost method as it is more direct. It allows for taxpayers to claim $0.52 per hour worked from home with less of the somewhat onerous record keeping requirements.
This method covers the following expenses:
– Decline in value of depreciating assets for home office furniture & fittings
– Electricity and gas
– Cleaning of home office
In addition to the $0.52 per hour worked from home taxpayers can also claim:
– Mobile phone, data and internet usage
– Decline in deprecating assets such as laptops, computers & monitors.
It also has the allowance for an immediate deduction for assets less than $300.
Here’s what this could look like in practice:
· You worked from home 37.5 hours per week for 48 weeks
· Your phone bill is $80/month and 30% of your use is work-related
· Your internet bill is $70/month and 40% of your use is work-related
· You purchased a $270 computer monitor
· You spent $50 on stationary
Your working from home deduction could look like:
= (37.5 x 48 x 0.52) + (80 x 12 x 0.3) + (70 x 12 x 0.4) + (270) + (50)
= 936 + 288 + 336 + 270 + 50
It is important to note that if a taxpayer’s home is their base of employment, they can claim travel expenses if:
– They are required to start work at home then travel into their regular place of work (office).
– Carrying out work in two locations is necessary due to the nature of their work.
If the tax payer has no fixed place of work (example: IT support staff whose home is their base of employment) and is required to work at more than one site per day. They can claim travel both to their first site and in between sites.
Of course, this is only just scraping the surface of the obligations and opportunities that come from working from home and is general in nature and doesn’t take into account your specific personal requirements. Please feel free to reach out and book a consultation.