With the rise of remote work, understanding the rules around claiming tax deductions for working from home has become increasingly important. Regardless of if you’re an individual employee or a business owner, knowing what you can claim can help you maximise your deductions and ensure compliance with ATO regulations.
If you work from home, you can claim deductions for expenses directly related to your work provided that the following conditions are met…
- You must have spent the money yourself (and not been reimbursed).
- The expenses must directly relate to earning your income.
- You must have kept records to substantiate your claims.
Methods to Calculate Deductions
- Revised Fixed Rate Method (67 cents per hour)
- What It Covers: This rate covers electricity, gas, phone, internet, and cleaning costs.
- No Dedicated Office Required: You do not need a dedicated home office space to use this method.
- Record Keeping: Keep a record of all hours worked from home.
- Actual Cost Method
- What It Covers: This method allows you to claim the actual work-related portion of all running expenses.
- Detailed Records Required: You need to keep detailed records and receipts for each expense.
Deductible Expenses
- Electricity and Gas: For heating, cooling, and lighting your work area.
- Phone and Internet: The work-related portion of your phone and internet usage.
- Cleaning Costs: For a dedicated work area.
- Depreciating Assets: The decline in value of office equipment and furniture.
- Stationery and Computer Consumables: Items like printer paper, ink, etc.
Non-Deductible Expenses
- Personal Expenses: Items like coffee, tea, and toilet paper are not deductible.
Record Keeping
- Timesheets: Maintain timesheets or a diary to record hours worked from home.
- Receipts and Invoices: Keep receipts and invoices for all claimed expenses.
- Logbooks: Use logbooks to track the usage of items like internet and phone.
Occupancy Expenses:
Rent, mortgage interest, property insurance, and land taxes are generally not deductible as an employee unless VERY limited circumstances apply. These are: you either have no alternative workplace and no workplace was provided for you and / or (potentially) if the area of your home that you use for work is exclusively (or almost exclusively) used for work purposes and not readily capable of being used for any other purpose.
As a business owner, you can claim these expenses. Note! If you claim occupancy expenses, as a home owner, then you are potentially opening yourself up for capital gains tax consequences if you sell your home down the track. This is in an important consideration to bare in mind and why, generally speaking, far more renters will claim occupancy expenses than home owners.
Conclusion
Incorrect working-home-home claims can be an audit target. Be sure to understand what you can claim, how to claim it, and that you have records to substantiate all of your claims. The ATO have tightened up the criteria for working-from-home claims, compared to what it used to be; so it’s crucial to be across the rules if you’re going to be claiming these deductions in your tax return. For more information, don’t hesitate to get in touch with our team.
