They say ‘home is where the heart is’ but it is also the place where you don’t have to wear pants. Very casual Friday. But what does this mean for tax?
They say ‘home is where the heart is’ but it is also the place where you don’t have to wear pants and no one will judge you for it except your dog...provided you remember to turn your video off during Zoom meetings.
If you work from home, come tax time you can usually claim a deduction for some of your expenses. What you can claim will be guided by which of the following situations you fit into:
- You have a dedicated work area such as a spare room or study to work from.
- You don’t have a dedicated work area and look a little like the dog below working from the couch or a dining table.
- You run a business from home which includes a room/area set aside exclusively for business activities.
The yays and nays of possible home office deductions for each category look a little like this:
So, cool table and all but how do we actually work it out?? Great question, I’m glad you asked!
There are 2 ways to claim a deduction on home office runnings expenses:
- Fixed Rate
- Actual Expenses
Applying the set ATO rate of 52 cents per hour worked from home takes up a portion of your heating, lighting, cooling, cleaning and decline in furniture costs. To claim using this method you simply need records of actual hours worked from home for the year.
However, if you use this method, you need to claim the work related portion of the following expenses separately:
- Phone & internet
- Computer consumables & stationery
- Decline in value on computers or other equipment
Applying this method for your dedicated work area will require you to keep records of all running costs which can then be totalled, and apportioned to reflect the amount for work use.
This can be done a few different ways for the various costs.
- Gas & Electricity: cost per unit of power used, average units per hour used, or cost for the year apportioned for number of hours worked.
- Cleaning: apportioned based on floor space and any private use of the area.
- Decline in value of equipment: as a percentage of total cost to reflect work vs personal use.
- Mortgage interest
- Home & contents insurance
These must be calculated on actual cost for the year and be supported by accurate records of how these were calculated (to put it simply….keep those bills and statements around!). They then get apportioned based on the space used for business as a percentage of total living space and also need to reflect the portion of the year it was used for business.
Eg. You run your business for the full year out of a home office that takes up 15% of the total area of your home. This would allow you to claim 15% of rent or mortgage interest, rates and insurance.
Heads up! If you’re running your business from home, own the home and are claiming occupancy expenses you won’t get the full main residence CGT exemption when it comes time to sell but you may get a partial exemption.
and then along came COVID-19…
The ATO have been legends when it comes to recognising the impact COVID-19 has had on our working situation. As a result, they’ve allowed a shortcut method of claiming expenses related to working from home since a whole bunch of us have relocated from our offices to our homes to work remotely.
While we temporarily work from home reminiscing on water cooler chats and missing the high-fives around the office, we will be able to claim 80 cents per hour to cover additional running expenses your home might not usually be up for. You will not however be able to claim occupancy expenses or those extra coffees and biscuits in the new staff tearoom (aka your kitchen which is now full of quarantine snacks).
This can apply from 1 March 2020 until at least 30 June 2020 and may be extended depending on when work arrangements return to normal (we’ll keep tabs on this for you!).
The other bonus is we have the choice of which fixed rate method we use, so here’s how they stack up:
Need some clarity around what records to keep and which of the above will be the way to go for you come tax time? Give us a buzz!