Make sure you understand what you can and can’t claim in your next tax return
After a couple of years of working from home during a global pandemic, it’s no surprise that the cost of working from home has increased significantly for many households. But which and how much of those expenses are you eligible to claim in your next tax return?
If you’re trying to find loopholes, just remember that every year, every single tax return is analysed and the ATO will select some to complete a full audit. The ATO’s systems are getting smarter with data matching capabilities and have more ability than ever to identify information that has not been included in tax returns, and claims that should not be in there.
If you’re looking for a clear guide on how to calculate your WFH expenses for your next tax return, this is the place to start:
3 golden rules for your tax return’s WFH deductions
Whether you’re working from home full-time or have a hybrid set-up that means you work from home for some days each week or month, these golden rules apply when it comes to calculating your WFH deductions on your next tax return:
- You must be the one who paid the expenses, and your employer has not refunded you
- The deduction must be related to work earnings
- There must be a record (receipts) to support your deduction claims
So while you might have had to buy your own snacks or buy a music streaming subscription because those things were provided in your office and weren’t available in your home, those aren’t deductible expenses because they’re not directly related to earning income!
3 methods of calculating Work From Home deductible expenses
The temporary (COVID-19) short-cut method
When the pandemic forced millions of Aussies to work home for the first time in 2020, the ATO introduced a shortcut method to help people quickly determine deductible work from home expenses.
The shortcut method (80c per hour worked at home) applies to work out home deductions if you:
- worked from home between 1 March 2020 and 30 June 2022 and incurred some additional running expenses as a result
- have a record of the number of hours you worked from home
The rate was introduced to simplify and streamline the process of calculating work from home costs and prevent people from submitting ineligible claims. It is a catch-all rate and no other working from home expenses can be claimed and only eligible for expenses incurred until 30 June 2022 (after this, the fixed rate or actual cost methods must be used unless the government extends it).
If you’ve used the shortcut method in the past and have correctly completed your tax return with accurate income and expenses, you have nothing to worry about.
The fixed rate method
The fixed rate method would apply for those Working From Home outside the dates provided for the temporary COVID-19 shortcut rate. You can view full details about who is eligible and how it applies on the ATO website.
In summary, you can claim the fixed rate (52 cents for each hour you worked from home) which covers the running expenses you incur for:
- the decline in value of home office furniture and furnishings – for example, a desk
- electricity and gas for heating, cooling and lighting
- cleaning your home office.
On top of the 52c/hour worked at home, you can also claim the work-related portion of the following expenses:
- Phone and Internet expenses
- Stationery and consumables like ink
- Computer Equipment, including laptops.
Keep in mind that depreciation must be calculated for anything over $300
Actual cost method
The actual cost method means claiming any additional expenses incurred when working from home, including:
- Home office furniture (desk, chair) and furnishings, phones and computers, laptops, or similar devices – anything over $300 must be depreciated
- cleaning expenses, only the dedicated area for working
- Heating, cooling, and lighting – electricity and gas (complicated)
- Phone and internet
- Computer consumables and stationery – such as printer ink
To calculate the actual cost of these WFH expenses accurately, you’ve got to be specific and thorough, and it’s worth following the actual cost method guidelines supplied on the ATO website to make sure you’ve done it correctly.
Things you shouldn’t be claiming in your tax return
One of the 3 golden rules to claiming a WFH expense is that expense needs to be directly related to earning your income. Here are some of the common ones we see people trying to claim for:
|Costs incurred while caring for children while working from home: Those devices or toys you purchased for your kids while you were home-schooling and working from home at the same time? Sorry, not deductible. Any computers, iPads or furniture that are used by your children for their homework would only be tax deductible if you use any of them directly for work (and if it’s used 90% for your kids and 10% for work, you only claiming 10% of its value).
|Food: Your employer may provide snacks at your workplace to improve the work mood. However, when you work at home, what may have been an in-office perk (snacks, coffee, drinks) are purely your expenses.
|Travel to your regular place of work: If you choose to work from home travelling to work is not deductible. If your place of work is far away (e.g. your office is in Sydney but you choose to live on the Sunshine Coast) travel or flights to your place of work, even if interstate, are not deductible. However, if your employer does not have a workspace for you and you work from home then travelling to the office for meetings etc is deductible (see below).
Things you can claim in your tax return (but maybe didn’t realise you could)
|Travel expenses incurred in gaining or producing assessable income: If travel fits in your duties of employment, occurs on work time, or is requested by your employer (e.g. travel to a conference or a sales meeting), then you may be able to claim motor vehicle (MV) expenses, tolls, parking, Uber or taxi fares, flights, car hire, accommodation or good expenses. You will need to keep a clear record of each of these expenses in the future.
|Education Expenses: There is a $250 limit on Educational Expenses which is in place for the 2021-2022 financial year. We’re hoping the Treasury Laws Amendment (2021 Measures No. 7) Bill 2021 means this is removed for the 2022-2023 Financial Year.
|Rapid Antigen Tests (RATs): If you’re an employee and buy a RAT test for work-related purposes, you can now claim the cost in your tax return. That is a tax benefit of $6.50 on an average worker’s salary. However, you cannot claim RATs used for your kids or spouse.
|Donations: Donations are tax deductible if you donate to an approved Deductible Gift Recipient Organisation (DGR). You can check on the ABN Lookup website to confirm if who you donated to has this status, and you must have a copy of the receipt to claim an eligible deduction.
Need help preparing your tax return?
The ATO is cracking down on what individuals are submitting in their tax returns this year, so it’s important to be across any new tax laws that have been applied since the beginning of COVID-19, and ensure your records are thorough and kept for at least 5 years since incurring an expense.
If you’re unsure about what should and shouldn’t be included in your tax return this year but you’re keen to reduce your tax bill, be assured that our agents are up to date and will be able to guide you through the completion of your tax return. We welcome questions and want to equip you with proactive advice and education so you can manage your finances confidently and make your hard-earned money work harder for you.