Even though there are no more mandated Work From Home (WFH) rules from the government, 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 is – 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 – like 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 of calculating 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 used to be 1 Golden Rule about 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.
These changes are in place from 1 March 2020 until 30 June 2022. So lets make sure we maximise these for you.
The ATO is allowing deductions without the need for you to have a home office. So the kitchen table and sofa now count for this time period only. However, you can only claim the expenses for the hours you had exclusive use of the area.
We’ve provided a table below to help you work it out, however, we can do the maths for you if it seems overwhelming. We just need to know how many hours a week you have worked from home and how many weeks you did this throughout the year.
Note: If any item of Equipment is over $300, its depreciated over time, otherwise it is tax-deductible in the year you purchased it (adjusted for private use). This would include laptops, mobile devices, webcams, headsets, subscriptions to cloud-based platforms, video conferencing fees, etc.
If you use your own phone for work purposes, you can claim a deduction if you paid for these costs and have records to support your claims. If you use your phone for both work and private use, you will need to work out 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 work out 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 percentage of work use over that 4-week period. You can then apply that to the full year.
Similar rules apply to internet and data.
Just back tracking 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, in limited and specific circumstances; 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 takes up 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 refer to as the ‘interest deductibility test’.
To pass the interest deductibility test , 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’s:
- 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 growth in our homes over the last few years. We don’t want the CGT expense to outweigh your tax minimisation strategy. Drop us an email 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 weren’t 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 more importantly your team members who have been working from home.
For more details information head to the ATO website.
- Shortcut method
- Fixed Rate Method
- Phone, data and internet expenses