Tax Deductions for Work-From-Home Employees
It’s tax season. It’s also the new normal. If you’re working from home while the coronavirus pandemic continues to rattle the country, you’re likely incurring expenses that you have not spent on before when you’re working at the office. Some of these expenses can be claimed as a deduction on your federal income taxes.
Here’s a rundown of the most important things that you need to be aware of when lodging your tax return for 2019-2020 as a WFH employee.
According to the Australian Taxation Office:
"Running expenses are the increased costs from using your home facilities for your business – these include electricity charges for heating and cooling, lighting, cleaning costs, a decline in value and the cost of repairs on depreciating assets such as furniture, furnishings and equipment."
ATO provides three methods to calculate running expenses:
1. Shortcut Method
This method allows you to claim 80 cents per work hour for all running expenses. You no longer need to expense all deductible running expenses individually.
To be eligible to claim 80 cents per hour due to working from home, you need to be:
- Working from home full time to meet your employment responsibilities and not just checking your emails or taking calls from time to time
- Incurring additional running expenses due to the WFH setup
As proof, you need to provide:
- Timesheets, rosters and diary entries that show the number of hours you’ve worked from home
- Receipts of the phone, the internet, and home office bills
2. Fixed-Rate Method
This method lets you claim a fixed rate of 52 cents per work hour on:
- Lighting, cooling, heating, and decline in office furniture
- The work-related portion of your phone and internet expenses, computer and stationery
- The worked-related portion of the decline in value for your electronic work devices
- Create a diary for a representative 4-week period showing your usual working pattern and record the number of hours you’re working at home.
- Separately calculate the expenses for your phone and internet usage, computer consumables and stationery and any office electronics or furniture that are declining in value using the ATO myDepreciation tool.
3. Actual Cost Method
This method allows you to claim all your actual work-related portions. It works best if you have a dedicated workspace.
To calculate your running expenses:
- Have a diary for a representative 4-week period showing your usual working pattern.
- Calculate the decline in appreciating assets with receipts for proof.
- Work out your cleaning expenses by totalling your receipts and multiplying them by the floor area of your workspace.
- Individually calculate your heating, cooling and lighting costs.
- For your home office furniture, you can claim for a deduction that costs $300 or more by calculating the decline of owned assets for the income year and assets used for work-related needs.
What You Can and Cannot Claim
To be eligible for a WFH tax deduction, your recurring expenses must be:
- Real – You spent the money on this expense.
- Relevant – The expense is directly related to your income to be recognised as an ATO work-related expense.
- Recorded – You have records to prove the expenses.
- Cleaning Costs for your dedicated workspace
- Computer and Stationery
- Home Office Equipment (such as computers, printers, phones and furniture) which you can either claim up to $300 or decline in value for items over $300
- Phone and Internet Expenses
- Running Expenses (1st of March to at least 30 June 2020) such as electricity for heating, cooling and lighting in your working space
- Occupancy Expenses including rent and mortgage rates. If you’re running a business from home, you may be entitled to a partial exemption.
- Coffee, tea and milk, even if your employer has provided them in your workplace
- Children’s education costs
Tax Return FIling Process
Tax filing for 2019-2020 has started on the 1st of July, 2020 and will run until the 31st of October, 2020.
You can either file your tax return personally through the myGov website. Alternatively, you can hire a professional tax accountant.
To file your taxes online:
- Prepare your Tax File Number, income (PAYG Payment Summary) and expense documents and records.
- Keep track of your expenses through the myDeductions app, which is exclusively intended for the use of employees, not business owners.
- Register at myGov account. Ensure that your ATO account is linked to your myGov account.
- The ATO will prefill some information such as your PAYG Payment Summary, bank and superannuation, as well as linked services such as your Centrelink and Medicare. Always review the information for accuracy.
- Follow the prompts adding in your expenses and other records.
- Remember to note ‘COVID-19 Hourly Rate’ if you want to claim tax back on running expenses or home office expenses.
- Submit your online Tax Return Form.
- Wait for the refund, which can take approximately two weeks to process.
Hired Tax Accountant
A professional tax accountant can help minimise errors in your tax files and expedite the filing process for you.
- Hire a reliable tax accountant, which you can work with in-person or online. If their services are offered online, always check the business’s reviews and ratings.
- Share the same important documents mentioned above with your tax accountant.
- Once your tax application is lodged, get confirmation details from your tax accountant and request them to keep you updated on the status of your tax return.
The cost of a tax accountant ranges from $75 to $220, with the median, ranging from $90 to $130 across Australia. By hiring a capable and more importantly, reliable, tax accountant, you’ll be able to see a huge difference in retained funds for personal or corporate use.
Regardless if you’re sorting out your taxes personally or hiring a tax accountant, it is best to do the process online. It takes approximately two weeks to process taxes online and ten weeks on paper.
If you need more assistance from ATO or want to follow up on the progress of your lodgments, call 13 28 65.