Working from home – What you can and can’t claim according to the ATO

Working from home – What you can and can’t claim according to the ATO

Running an office from home has its positives and negatives. Working in your underwear on a Monday morning is convenient and most comfortable while everyone else is tackling peak hour traffic. However when it comes to working out what running expenses you can and can’t claim at the end of the financial year is not as relaxed and easy as those worn in underpants.  So best to get dressed to visit your accountant for the latest information. Alternatively stay comfortable and read our fact sheet to get you on the right path!

When you are reviewing claims for home office running expenses and electronic device expenses, there is a need to establish that expense has been incurred and the amount of deductibility. The following information will provide you with some basic tips on potential tax deductions you can claim in your home office. The stand out areas that clients may be able to claim a deductions on are  

  • Home office running expenses – home office electricity, gas and cleaning and decline in value of home office items such as furniture and furnishing.
  • Electronic device usage expenses – phone calls and internet expenses (Please note that there are no claims for deductions on the decline in value of electronic devices.)

The Basics

Pre-requisites for deductions include

  • The taxpayer has actually incurred the expenses and has not been reimbursed
  • must be a real connection between the use of the home office or device and the taxpayer’s income-producing work

If the taxpayer uses their home office or device for work purposes and private purposes, only the expense related to the work usage can be claimed as a deduction.

Heating, cooling and lighting expenses are only available where the taxpayer exclusively uses these services while they work from home.

Evidencing Expenditure

Invoices in the name of the home owner or service recipient represent evidence that an expense has been incurred.

Where invoices are not available, corroborating evidence may be accepted to demonstrate the expense has been incurred.

Bank and credit card statements may be acceptable to establish that a taxpayer has incurred an expense. For example, a bank statement in the taxpayer’s name clearly showing a payment to a gas provider will be acceptable

Extent of Deductibility

Evidence is required to demonstrate how the taxpayer has calculated their deduction based on a proportion of the total expense incurred.

For example, if the taxpayer uses a separate room in their home as a home office to undertake work from home, and their spouse and three teenage children also use the room to work and study, the spouse and children’s usage of the home office will need to be factored in to the calculation to determine the proportion of the taxpayer’s claim for a deduction.

Taxpayers can prove their deductible (work) use proportion by:

  • providing evidence of the proportion of deductible use for the whole year, such as ‘itemized’ supplier records
  • providing records showing their detailed usage pattern over a representative period
  • In limited cases when calculating the work use proportion of home office running expenses, by providing a reasonable estimate. This will only be accepted where the claim for home office running expenses is small and the taxpayer can demonstrate to your satisfaction that their estimate was reasonably likely under their given circumstances.

Special Rules for Home Office Running Expenses

Taxpayers can calculate their home office running expenses by:

  • keeping records and written evidence to determine their work-related proportion of actual expenses incurred
  • use a rate of 52 cents per hour effective from 1 July 2018

Taxpayers who use the rate per hour method to claim a deduction for home office running expenses only need to keep a record to show how many hours they work from home. They can do this over the course of the year, or if their work from home hours are regular and constant, by keeping a record for a representative four-week period.

This method incorporates all of the items that a taxpayer can claim as a home office running expense including lighting, heating, cooling, cleaning costs, and decline in value of home office items such as furniture and furnishings in the area used for work.

Special Rules for Device Usage Expenses

Taxpayer’s can calculate their device usage expenses by

  • keeping records and written evidence to determine their work-related proportion of actual expenses
  • Claim up to $50 in total for all device usage charges with limited documentation.

For mobile phone expenses, in determining a work-related proportion, the following factors are elements that can be considered

  • number of work calls compared to private calls
  • time used for work calls compared to private calls
  • time used in different functions for work-related purposes compared to private purposes
  • the time spent using the mobile telephone for work-related and private purposes each day

 For device data usage expenses, either:

  • the time spent by the taxpayer using the internet for work purposes compared to
  • time spent by the taxpayer and all others using the internet (time basis), or
  • Data used for work purposes compared to data used for all purposes for the taxpayer and all other users (data basis).

Taxpayers using the $50 method can keep basic records to show how they arrived at their claim without keeping detailed written evidence. They can base their records on the following:

  • for a home phone, based on a rate of 25 cents per work call
  • for mobile phones, based on a rate of 75 cents per work-related call, and 10 cents per work-related text message
  • for device data usage, based on time spent or data used for work purposes (compared to all other usage by the taxpayer and other users)

Of course while this article may have been able to shed some light on what you can and can’t claim it’s always best to speak to a professional.

For more information on the deductions allowed for home office expenses, including when an area of the home is considered to be a private study or place of business please refer to the ATO government websites for the full fact sheet. Alternatively please contact a staff member from dnm group to discuss further.

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