COVID-19: Tax deductions for working from home expenses

Key points

  • The ATO has announced a new “shortcut method” for calculating tax-deductible work from home expenses for the period 1 March 2020 to June 30, 2020
  • To use the shortcut method you just keep track of the number of hours you worked at home in this period and multiply it by $0.80
  • You don’t need to calculate specific costs and you don’t need to keep receipts, but you do need to keep records to substantiate the number of hours you worked at home
  • You can still use the old more complicated methods but you will need to keep receipts and other records

The new “shortcut method” for claiming work from home expenses as a tax deduction

The ATO has announced a new, simplified method of calculating deductible home running expenses for people working from home due to COVID-19. The new method can be used to calculate a tax deduction for the period 1 March 2020 to 30 June 2020.

To use the new method all you need to do is calculate the number of hours you worked at home during this period and multiply that number by $0.80. The resulting total is your tax-deductible expense. This is meant to include all of your home running expenses including things like electricity and gas, depreciation of things like furniture, cleaning expenses, phone costs, internet costs, computer consumable, stationery, and the depreciation of things like computers, laptops, and tablets.

If there is more than 1 person working from your home each person can make a deduction using the same approach.

If you use the new simplified method for calculating your deduction there is no need to keep receipts or calculate specific costs, but you still need to keep records to support the number of hours you worked. Timesheets, rosters of diary notes should suffice for this.  When you complete your tax return you will also need to include the note “COVID-hourly rate”. Exactly where you need to put will probably be clear when you do your tax return.

More details are available from the Australian Taxation Office here Employees working from home.

The other methods for claiming a deduction for work from home expenses

There are now 3 different methods for calculating a tax deduction for work from home expenses and you can still choose to use one of the other methods if you want to. We’ve described the new “shortcut method” above. The other two methods are:

  • the fixed rate method – with this method you claim $0.52 per work hour for heating, cooling, lighting, cleaning and depreciation of office furniture, the work-related portion of your actual costs for phone and internet expenses, computer consumables and stationery and the work-related portion of the decline in value of a computer, laptop or similar device
  • the actual cost method – with this method you claim the actual work-related portion of all your running expenses, which you need to calculate on a reasonable basis

You may still calculate a tax deduction for working from home expenses using one of these other methods – but its more complex and onerous – and if you use the simplified method you can’t also claim a deduction for any specific home running expense. It’s one method or the other.

The types of expenses you can claim

If you use the fixed-rate method or the actual cost method you may be able to claim work-related phone and internet expenses, the work-related portion of the depreciation of a computer, and the depreciation of office equipment you use. If your home is not your principal workplace but you have a dedicated work area you may also be able to claim a portion of your running expenses. If your home is your principal workplace and you have a dedicated work area you may also be able to claim a portion of your running expenses and occupancy expenses.

Further information about claiming a tax deduction for working from home expenses using the fixed-rate method or the actual cost method is available from the ATO here Home office expenses

Don’t forget the 3 golden rules

Regardless of which method you use to claim your tax deduction for working from home expenses the same 3 ‘golden rules’ apply:

  • you must have spent the money
  • the expense must be directly related to you earning an income
  • you must have the appropriate record to prove it

MoneyBrilliant’s Tax Deduction Feature

To help you keep track of all your expenses that might be tax-deductible – including working from home expenses – MoneyBrilliant Plus customers can use the MoneyBrilliant Tax Deduction feature. By answering a few simple questions MoneyBrilliant can identify expenses that could be tax-deductible for you. You can review each transaction, decide whether it is tax-deductible, what proportion of it is tax-deductible, and track it until you complete your tax return at the end of the year. You can even send the list to your accountant or tax agent. You’ll find the Tax Deduction feature on the Manage My Spending dashboard.

If you are concerned about the financial impact of COVID-19 or you are facing the uncertainty of losing your job or having your income significantly reduced we can help. Sign up to MoneyBrilliant and we will give you access to a host of tools and features to help you organise your finances and make better decisions about your money. We’ll also give you tailored insights about the financial assistance available from governments and businesses to help you face the economic and financial challenges caused by the COVID-19 pandemic.

You can register for MoneyBrilliant online at www.moneybrilliant.com.au or download our app from the App Store or the Play Store.

This summary has been prepared by MoneyBrilliant Pty Ltd (AFSL 492711, ACL 493068). The information in this summary is of a factual nature only. We are not suggesting or recommending that you take any particular course of action in relation to any financial product or service. It does not take into account your personal circumstances or objectives. If you need financial advice or taxation advice you should seek advice from a licensed financial adviser or tax agent. You may also be able to access additional information from the websites of the Australian Securities and Investment Commission (ASIC) and the relevant product providers.

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