What working from home expenses can you claim?

The ATO continues to be concerned about the validity of tax deductions being claimed by individuals. This year they have narrowed their focus on deductions for individuals to look closely at home office expenses.

Last financial year, $7.9 billion was claimed in deductions for ‘other work-related expenses’ (this includes working from home expenses) across 6.7 million taxpayers. While the ATO acknowledges that there is a rising trend for working from home and that technology has lead to greater flexibility in being able to do so, they believe that some taxpayers are “either over-claiming or claiming private costs.”

A lot of the problem seems to be lack of understanding or not excluding private usage components from expenses claimed as a deduction. For example, claims have been submitted where the entire individual cost of internet or mobile phones is entered, rather than just the portion of those costs that directly relates to working from home. To put the ATO concerns about this in context: if it is allowed to go on it means a taxpayer has their personal household costs subsidised by other taxpayers, at the expense of the government funding items for the benefit of the broader population. Feel like funding a dog food marketer to watch TV on the weekend, anyone?

Lack of proper records is also an issue. You need to be able to prove you incurred an expense and how your claim was calculated. The ATO has stated they are also putting a focus on record keeping this year. Assistant Commissioner Kath Anderson warned that “claims where the taxpayer hasn’t kept records to prove that they legitimately incurred the expense and that the expense was related to their work” will be disallowed.

Here are some examples of the types of claims the ATO is concerned about:

    1. A school principal claimed a deduction of $2,400 relating to electricity and phone expenses incurred when working from home. Although she had a letter from the school confirming she was required to complete work from home, she was unable to show how the claim had been calculated. The principal voluntarily chose to reduce her claim by 70%.
    2. An advertising manager completed irregular work from home to fit in overseas clients in different time zones. She tried to claim the rent of her home as a tax deduction – this was rejected by the ATO.

So what can you claim?

For work you do on your laptop when sitting at the dining room table or on the couch you can claim the following (in proportion to the cost that is directly related to the work you do from home):

    1. phone calls/charges
    2. internet usage
    3. the decline in the value of your computer.

Up to $50 can be claimed for phone and internet costs (unless you are a casual worker) without substantiation but you still need to be able to show how you have worked out you are entitled to this.

If you have a designated work area or home office, you can add to the above list and also claim the following (again, in proportion to the cost that is directly related to the work you do from home):

    1. ‘running expenses’ – lighting, cleaning, heating, cooling
    2. the decline in value of your office equipment (if the cost was over $300).

There are two methods you can use to work out your claim for ‘running expenses’.

The first is to record the actual amount of time you are working from home, or keep a log book for four weeks (which providing your work patterns don’t change over the year is then used as a basis for your full year expenses). You then claim based on a fixed rate of 45 cents per hour worked from home in the financial year.

The second method is to claim the actual expense. This is worked out by multiplying your total running expenses for the year by the percentage of floor area occupied by your work area by the percentage of the year that you used this area exclusively for work purposes.

If you run a business from home, all the above applies plus you can claim a percentage of ‘occupancy expenses’ which are things like:

    1. rent or interest on your home loan
    2. property insurance
    3. land taxes/rates.

To claim ‘occupancy expenses’ your home must be your ‘place of business’ and you must have no other work location. To calculate the percentage that you can claim you multiply your total occupancy expenses by the percentage of floor area occupied by your work area by the percentage of the year that you used this area exclusively for work purposes.

A note of caution: claiming occupancy expenses will impact the tax-free main residence exemption for Capital Gains Tax (CGT) purposes. This means that if you sell your property, CGT may be applied on the value attributed to the portion of your home used for business purposes. If you are considering making your home your place of business please give us a call on 03 5339 3200 to discuss the implications this may have for you. In some cases you will need a valuation of your home performed.

In closing: only claim for things you paid for and only claim to the extent that the costs related to your work. Claiming a straight 100% of your costs when you are not running a business from home will attract ATO attention and they are prepared to contact your employer to check up if you do work from home and if so, how much work you do from home.

If you are unsure about what working from home expenses you can claim on your individual tax return, please call us on 03 5339 3200 or contact us here.

Thanks for reading.

By Genna Kidd

The information contained on this website has been provided as general advice only. The contents have been prepared without taking account of your personal objectives, financial situation or needs. You should, before you make any decision regarding any information, strategies or products mentioned on this website, consult your own financial advisor to consider whether that is appropriate having regard to your own objectives, financial situation and needs.

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