Even though there are no more government mandated Work From Home (WFH) rules, many people (including business owners) are either still working from home or splitting a portion of their working hours between home and the office.
The good news? – Work from home tax deductions could mean a bigger tax refund for you this year!
If you have been working from home then you are probably using your own internet, phone, power, office furniture, printer, supplies and other office stationery.
Home office expenses are split into two types:
- Running expenses: for when you do some of your work from home (for example on a temporary basis – for instance while in lock down).
- Occupancy expenses: if your permanent place of work IS NOW your home. Be aware, however there is a lot of case law around this criteria so make sure you discuss this with us first.
There are two ways to calculate your WFH deductions. While the ATO is encouraging people to use the 80 cent WFH deduction, you may be missing out on deductions if you use this method.
IMPORTANT UPDATE ON WFH DEDUCTIONS
Prior to COVID there was only 1 Golden Rule for working from home deductions:
‘You could not claim home office expenses on your tax returns unless you actually had a dedicated home office space!’
- not shared with other people, OR
- not used for other purposes (like eating, sleeping, watching TV).
BUT COVID has changed this.
Changes came into effect from 1 March 2020 until 30 June 2022. So let’s make sure we maximise these for you.
For this time period only, the ATO is allowing deductions without the need for you to have a home office ꟷ so the kitchen table and sofa now count. However, you can only claim the expenses for the hours you had exclusive use of the area.
The table below will help you calculate your claim, however we can do the maths for you if it seems overwhelming. We just need to know how many hours a week you worked from home and how many weeks you did this throughout the year.
Note: If any item of equipment is over $300, it is depreciated over time, otherwise it is tax-deductible in the year you bought it. This includes laptops, mobile devices, webcams, headsets, subscriptions to cloud-based platforms, video conferencing fees etc.
If your own phone is used for work purposes, you can claim a deduction if you paid for this cost and have records to support your claim. If you use your phone for both work and private use, you will need to calculate the percentage that reasonably relates to your work use. You can’t double-dip and claim for phone expenses that have been reimbursed by your employer.
To calculate your deduction, you need to choose a typical four-week period from some point in the tax year.
If you have a phone plan where you receive an itemised bill, you need to determine your work use percentage over that 4-week period. This can then be applied to the full year.
Similar rules apply to internet and data.
Let’s back track now on the occupancy expenses in relation to your accommodation – rent and mortgage interest…
Generally, occupancy expenses are relevant only to those using their home as a place of business.
However, if your employer does not provide you with a workspace and you can provide evidence that your home is your primary place of work, you can claim occupancy expenses as well.
You can claim a percentage of your occupancy expenses based on the space used for this purpose. For example, if your home office occupies 15% of your home, you can claim 15% of your occupancy expenses.
Occupancy expenses may include:
- Mortgage interest
- Council rates
- House and contents insurance
You may be able to claim these based on the share of expenses that relate to your business.
In order to claim occupancy expenses, you must be able to pass what the ATO refers to as the ‘interest deductibility test’.
To pass the interest deductibility test1, the area you have set aside in your home for your business must have the character of a place of business.
Indicators that an area of your home has the character of a place of business include that it is:
- clearly identifiable as a place of business, for example, you have a sign identifying your business at the front of your house
- not readily suitable or adaptable for private or domestic purposes
- used exclusively or almost exclusively for carrying on your business
- used regularly for visits by your clients
Examples of businesses that may pass the interest deductibility test include:
- hairdresser’s home salon
- caterer’s home kitchen
- photographer’s home studio
IMPORTANT TO KNOW:
If you pass the interest deductibility test, you may have to pay tax on any capital gains you make when you sell your home. This applies even if you didn’t:
- borrow money to buy your home
- claim a deduction for mortgage interest as an occupancy expense.
We strongly recommend you discuss home occupancy rules with us before making any claims – especially considering we have seen significant capital growth in our homes over the last few years. We don’t want the CGT expense to outweigh your tax minimisation strategy. Email us any time if you are unsure.
Remember it’s the ATO’s job to collect revenue for the government, not help you increase your refund – that’s our job!
Whatever method you use there are three golden rules:
- You must have spent the money yourself and have not been reimbursed
- It must be directly related to earning your income, and
- You must have a record to prove it.
Feel free to share this article with your friends, family and ꟷ more importantly ꟷ your team members who have been working from home.
For more details information head to the ATO website.