Deductions & work-related home office expenses

When it comes to lodging your individual tax return, it’s important to note the distinction between taxable income and assessable income. In broad terms, taxable income = assessable income – allowable deductions.

According to recent ATO data*, for the 2017-18 FY, 14.29M+ individuals claimed on average $2,576 in deductions, such as donations, work-related expenses, cost of managing tax affairs, and personal super contributions.

Furthermore, 8.95M+ individuals claimed on average $2,424 in work-related expenses, such as car, travel, clothing, and self-education, as well as other expenses, such as home office.

Interestingly, in terms of home office expenses and employee working arrangements, according to ABS data^, 24.60% of employees regularly worked from home in 2019. Compared to, 22.87% in 2017 and 21.48% in 2015.

The steady rise in employees working from home is addressed in a previous video, however, as an overview, flexible working arrangements, such as working from home, have been reported to^#:

• Future-proof the workplace.
• Increase aspects of workplace gender equality.
• Improve employee productivity and wellbeing, as well as attraction and retention.

Employee’s key benefits and challenges reported are*^:

• Advantages: Flexibility, work-life balance, and no office-based distractions.
• Disadvantages: Isolation, maintenance of work-life balance, and household distractions.
• Unexpected costs: Office supplies and technology, electricity bills, and food consumption.
• Workplace health and safety issues: Home office set-up ergonomics and not taking appropriate breaks.

Given above, from a costs perspective, we provide a general overview of work-related home office expenses below.

Understanding work-related expenses

Definition of a work-related expense

Before diving into work-related home office expenses, it’s important first to understand work-related expenses in general. A work-related expense is an expense you incurred in relation to performing your work duties.

To claim a deduction for a work-related expense, three main rules must be satisfied:

1. It must be directly related to earning your income.
2. You must have a record to substantiate your claim, such as receipts, invoices, bank statements or calculations.
3. You must have personally incurred the expense and not have been reimbursed by your employer.

If the expense was for both private and work purposes, only the work-related portion can be claimed.

General record-keeping guidelines for work-related expenses

When it comes to the record-keeping required for claiming work-related expenses, there are two thresholds:

1. If the total claim for work-related expenses is ≤$300, written evidence isn’t required, however, you must be able to show how you calculated your claim.
2. If the total claim for work-related expenses is >$300, written evidence is required.

Please note: The $300 doesn’t include certain claims, such as car expenses, meal allowance, award transport payments allowance and travel allowance expenses—there are specific written evidence rules regarding these claims. Also, it’s important to note that up to the first $250 of certain self-education expenses are non-deductible, however, this amount may be reduced depending on the type of expenses you have incurred.

Work-related home office expenses

Overview

If you are an employee and work from home, you may be able to claim a deduction for home office expenses, such as heating/cooling, lighting and cleaning costs, the decline in the value of equipment and furniture, plus phone and internet expenses.

There are certain expenses you can’t claim as a deduction, for example:

• Costs in relation to your children and their education.
• General household items, such as coffee, tea, and milk.
• Occupancy expenses, such as rent, mortgage interest, and rates.

Furthermore, you can’t claim a deduction for costs reimbursed, or paid for directly, by your employer. This also extends to the decline in the value of equipment and furniture, such as a phone or laptop, provided by your employer.

Calculation methods

Depending upon your personal circumstances, there are three methods of calculating home office expenses:

• Shortcut method.
• Fixed-rate method.
• Actual cost method.

Please note: You can use the method or methods that will give you the best outcome—as long as you meet the working criteria and record-keeping requirements applicable for each method.

Shortcut method

Due to the COVID-19 pandemic, and the subsequent rise in employees working from home, the ATO introduced a simplified way to calculate home office expenses, such as:

• Phone and internet expenses.
• Heating/cooling and lighting costs.
• The decline in the value of equipment and furniture.

To use this method:

• You don't need to have a dedicated work area.
• You can't claim any other expenses for working from home.
• You need to keep a record of the hours worked from home via, for example, a timesheet, roster, diary or documents that note the hours you worked from home.

Under this method, you can claim $0.80 per hour for each hour you work from home during these periods:

• 2019-20 financial year: Total number of hours worked from home between 1 March 2020 and 30 June 2020 × $0.80.
• 2020-21 financial year: Total number of hours worked from home between 1 July 2020 and 30 September 2020 × $0.80.

Importantly, you will need to use one of the other deduction methods in relation to working from home before 1 March 2020 or after 30 September 2020.

It’s, therefore, important to also understand the other methods, especially their record-keeping requirements.

Fixed-rate method

You can claim $0.52 per hour for each hour you work from home for home office expenses, such as:

• Heating/cooling, lighting and cleaning costs.
• The cost of repairs to equipment and furniture.
• The decline in the value of furniture, such as a desk or chair.

To use this method:

• You need a dedicated work area.
• You need to keep a record of the hours worked from home—actual hours for the year, or over a four-week period (representative of your pattern of work for the year), for example, via a timesheet, roster, diary or documents that note the hours you worked from home.

Please note: This method doesn’t include phone and internet expenses, computer consumables and stationery, and the decline in the value of equipment, such as phones and laptops. These can be claimed in addition to the above and need to be calculated separately.

Actual cost method

You can claim for home office expenses, such as:

• Phone and internet expenses.
• Computer consumables and stationery.
• Heating/cooling, lighting and cleaning costs.
• The decline in the value of equipment and furniture.

To use this method:

• You don’t necessarily need a dedicated work area.
• You need to keep receipts for home office expenses, and calculate the work-related portion of your home office expenses.
• You need to keep a record of the hours worked from home—actual hours for the year, or over a four-week period (representative of your pattern of work for the year), for example, via a timesheet, roster, diary or documents that note the hours you worked from home.

Moving forward

Work-related expenses can be complex, so it's important to consider seeking professional advice from a registered tax agent prior to lodging your tax return.

A registered tax agent can help you to understand your personal circumstances in relation to your eligibility, and the required record-keeping to claim a deduction for work-related expenses.

*Australian Government, Australian Bureau of Statistics. (2020). Taxation statistics 2017–18 Individuals: Selected deductions, by deduction type, deduction claimed range and state/territory, 2017–18 income year.

^Australian Government, Australian Bureau of Statistics. (2015/17/19). 6333.0 - Characteristics of Employment, Australia, August 2015/17/19: Selected employment characteristics– By status of employment in main job.

^#Australian Government, Workplace Gender Equality Agency. (2019). Flexible working is good for business: The business case.

*^McCrindle Research. (2013). Working from home: The benefits and the cost: Research summary.

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