Working From Home Tax: What You Can and Can't Claim

The way we work is changing, and for many people working from home is the new normal. This allows for a huge amount of flexibility plus there are numerous ways to deduct home office costs in your tax return.

Many people don't know they are able to claim for working from home, and often miss out on valid deductions. But it's important to make sure you stay within the rules to avoid being penalised for making a mistake.

The most common errors are: claiming too high a work-related proportion for a particular type of expense, claiming something that shouldn't be claimed at all or simply not keeping records to substantiate the expense.

If you work from home (either part time or full time) then some portion of the home office expenses may be claimed as a tax deduction. However, if you set up your home office in a room that is shared or has a dual purpose (such as a living or dining room), you can only claim the expenses for the hours you had exclusive use of the area.

What are the rules for claiming expenses when you work from home?

If your home is your place of work and you have an area set aside exclusively for work activities, you may be able to claim both occupancy and running expenses. If you carry on your work or business elsewhere (such as an office) but do some work at home occasionally, you cannot claim occupancy expenses even if you have a home office area set aside.

Home office expenses you might be able to claim include:

Occupancy expenses
Such as rent, mortgage interest, rates, land taxes and house insurance premiums (but only in limited circumstances).

Heating, cooling and lighting.
You have to heat your home office in the winter and keep it cool during the summer. You also need light to see what you're doing! That means that you can claim a proportion of the various household utility bills that relate to the time you spend working in your home office. You can't claim for periods where the home office space is being used for other purposes and nor can you claim for the element of your bills that relates to the rest of your home.

Home office equipment, including computers, printers and telephones
You can claim the full cost (for items costing up to $300) or the decline in value (for items costing $300 or more). If you're self-employed, you may be able to immediately write-off equipment irrespective of the cost.

Work-related phone calls (including mobiles) and phone rental
You can claim a portion reflecting the share of work-related use of the line if you can show you are on call, or have to phone your staff, employer, customers or clients regularly while you are away from your workplace.

Depreciation of home office furniture and fittings
If you kit out your home office with furniture such as desks, shelving and cupboards, you can claim a deduction for the decline in value of that furniture to the extent that it relates to your work activity. That's likely to lead to a write-off of the cost over a period of several years (the "effective life" of the asset).

Depreciation of office equipment and computers
Similarly if you purchase items of technology for use in your home office, you can depreciate them over their life and claim a deduction each year for the work-related element. That might include:

• Computers
• Laptops
• Tablets
• Mobile phones
• Printers
• Other items Make sure you claim for the work-related proportion of other costs such as:
• Computer consumables (like printer ink)
• Stationery
• Telephone and internet costs
• Cleaning costs
• Costs of repairs to your home office furniture and fittings

The table below shows the deductions you can claim for the three ways you can work at home:

What you can claim		How you work
	Home is your place of business or work and you have a home work area	Home is not your place of business but you have a home work area	You work at home but you don't have a home work area
Occupancy expenses Cost of owning or renting the house	Yes	No	No
Running expenses Cost of using a room (such as gas or electricity)	Yes	Yes	Yes
Business phone costs	Yes	Yes	Yes
Decline in value of office plant and equipment (such as desks, chairs and computers)	Yes	Yes	Yes
Depreciation of curtains, carpets, light fittings, etc	Yes	Yes	No

HOW MUCH CAN I CLAIM?
There's no maximum amount that you can claim. Provided that the amount you're claiming is calculated in accordance with the rules, and that you have the necessary substantiation to back up your claim, you can claim whatever you're entitled to.

Methods of claiming home office deductions:

Receipts or other written records/evidence

In making home office deductions, ensure that you can substantiate all expenditure claims through receipts of diaries. This includes:

• Receipts for items of equipment you have purchased
• Diary entries you make to record your small expenses ($10 or less) totaling no more than $200, or expenses you cannot get any kind of evidence for, regardless of monetary amount.
• Diary indicating your running expenses related to working in your home office. Here, you need to detail the time you spend in the home office compared with other users. Keep a diary record for a minimum 4 week representative period. This can also include calculations of how much you used your equipment.
• Itemised phone accounts from which you can identify work-related calls.

Australian Tax Office rate per hour

As an alternative to keeping such records, you can use a fixed rate of 52 cents per hour for each hour that you work from home to allow for home office expenses. Under this method you can also include the decline in value of office equipment (such as computers and faxes) but not furniture. In this case you are unable to make additional claims for individual items.

The following costs are not deductible as part of home office expenses:

• Mortgage or interest costs
• Rates and taxes
• Depreciation on the home.

The ATO have implemented a shortcut method to cover the period from 1  March to 30  June 2020. During this time you claim a deduction for $0.80 per hour of documented work, and this covers all deductible running expenses. But note that, if you use this method, you cannot claim any other expenses for working from home for that period.

The ATO have implemented a shortcut method to cover the period 1 March 2020 to 20 June 2021.

Examples

Method 1: Actual running expenses

Betty has the following home office running expenses, including energy expenses that have been calculated using electricity authority hourly costs per appliance. The figures are based on four weeks of diary entries.

		Deduction amount – this year $	Deduction amount – future years (assuming similar use) $
Decline in value of desk	Value $350 over 10 years	35.00	35.00
Decline in value of chair	Value $150 over 1 years	150.00	Nil
Electricity for 60W ceiling light	0.7c per hour for 10 hours per week for 48 weeks	3.36	3.36
Electricity for computer	1c per hour for 10 hours per week for 48 weeks	4.80	4.80
Electricity for heating/cooling	9c per hour for 10 hours per week for 48 weeks	43.20	43.20
Total deductible amount		236.36	86.36

Method 2: Rate per hour

Using this method, Betty is able to use a simple and quick calculation for her expenses: 52 cents per hour for 10 hours per week for 48 weeks = $249.60.

H&R Block offers a Home Office Record Card you can use to keep track of this information. Just ask at your nearest office.

Remember – if you are not sure if you can claim an expense, keep the receipt and we will ensure that we claim all allowable deductions and rebates for you whilst preparing your tax return.

H&R Block can help

Let us lodge your tax return for you.

• Find your nearest H&R Block office and book an appointment
• Lodge your tax return online with H&R Block
• Download our tax app to help you track your tax deductible expenses and trips

This information sheet is intended as a guide for H&R Block clients. All actual detail and circumstances differ, please discuss your situation with an H&R Block Tax Consultant. Use one of our Tax saver envelopes to keep all your receipts and documents for the year. Remember – if you are not sure if you can claim an expense, keep the receipt and we will ensure that we claim all allowable deductions and rebates for you whilst preparing your tax return.

H&R Block is Australia's largest network of tax accountants with over 400 offices. Every year we help thousands of Australians achieve a better taxation result. For your nearest office call 13 23 25.

September 2019