With many of us working from home over the last three months due to COVID-19, we may be entitled to more tax deductions this financial year.
In anticipation of this surge of Australian workers claiming work from home expenses, the Australian Tax Office (ATO) has made several changes to account for this influx and to make it easier for Australian workers to file their tax returns.
This includes introducing a new method to calculate work from home expenses, known as the shortcut method, which can only be used from 1 March to 30 June 2020. It also allows Australian workers to claim pandemic-related items, such as soaps, face masks, hand sanitisers and gloves, as well as personal protective equipment (PPE) to work through the bushfires that took place this summer.
However, it’s important to note that you may still opt for the conventional receipts method – and H&R Block Director of Tax Communications Mark Chapman has previously indicated that workers may be eligible for a larger tax refund if they choose to calculate based on these methods.
The ATO has produced an online guide for works on how to claim COVID-19-related deductions that explains everything you need to know on how to file your tax return this year, which you can read here.
To read more about what changes can affect your tax return – including what you can and cannot claim, the three methods of calculating work from home expenses, whether you must claim JobKeeper/JobSeeker payments, and other COVID-19-related deductions – we put together this informational blog post to ensure that you’re aware of your options when it comes to calculating work from home costs.
DISCLAIMER: Please note, this blog post does not outline all the legal obligations of filing your 2019-2020 Income Tax Return and is to be used as an informational starting point and guide only. We encourage you to refer directly to the Australian Tax Office (ATO) websites and to speak to registered tax agents for the most accurate information.
What expenses can I claim working from home?
If you are typically an office worker who had to work from home due to COVID-19 government regulations, you are able to deduct the same additional expenses you would incur as you would working from home full-time. These include:
- Electricity expenses for heating, cooling and lighting your workspace and powering electronic devices you are using for work;
- Phone and internet expenses;
- Computer consumables (such as printer paper and ink) and stationery;
- Home office equipment, including computers, printers, phones, furniture and furnishings. You can either claim the:
- Full cost of items up to $300, or
- Decline in value for items over $300.
To claim any of the above, the Australian Tax Office states that all of the following must apply:
- You must have spent the money during the financial year;
- The expense must be directly related to earning your income; and
- You must have a record to prove it.
On the flip side, you may not claim a deduction for any items provided by your employer or if you have already been reimbursed by your employer for the expense.
In the same vein, if you are not reimbursed by your employer, but receive an allowance from them to cover these expenses whilst you work from home, you can claim a deduction for the expenses you incur but must include the allowance as income in your tax return.
How can I calculate my work from home expenses?
Now that we’ve outlined what expenses you can claim in your 2019-2020 tax return, here are the three ways you can claim your home office running expenses, according to the ATO website.
Please keep in mind that the shortcut method can only be used from 1 March to 30 June 2020. Any work from home expenses incurred prior to 1 March must be calculated using either the fixed cost method or the actual cost method.
The shortcut method
As a result of COVID-19, the Australian government has created a new method, known as the shortcut method, to claim a deduction of 80 cents for each hour you work from home from 1 March to 30 June 2020. To be eligible for this tax deduction, you must:
- Be working from home to fulfil your employment duties, and
- Have incurred additional running expenses as a result of working from home.
Whilst you do not need to incur all the aforementioned expenses to use the shortcut method, you must be able to prove that you have incurred additional running expenses whilst working from home.
To calculate your deduction using the shortcut method, use the following formula:
Total number of hours worked from home between 1 March and 30 June 2020 x 80 cents.
Then, on your 2019-2020 tax return, include the amount at the ‘other work-related expenses’ question in your tax return and use ‘COVID-hourly rate’ as the description.
Please note, if you use this method, you cannot claim additional work from home expenses during this time period and you must exclude the expenses as outlined under the ‘Expenses you can’t claim’ section of this blog post.
To learn more about the shortcut method and to see if it’s right for you, please refer to the ATO website or to a registered tax accountant.
The actual cost method
As implied by the name, the actual cost method is through calculating the actual cost of additional running costs you directly incur because you work from home. It may include any of the expenses outlined above in the ‘What expenses can I claim working from home?’ section.
If you don’t have a dedicated workspace, you will generally only incur minimal additional running expenses, as you cannot claim additional costs that are typically enjoyed by other members of your household.
For instance, if you are working in the lounge room, where other members of your household are also using at the same time you’re working, you won’t be able to claim additional costs for lighting, heating or cooling that room. Similarly, with your internet or phone bill, you can only claim the percentage of these bills used for work purposes.
To calculate the work-related portion of your actual expenses, you must be able to prove it through records, such as keeping:
- A record of the actual number of hours you worked from home throughout the financial year;
- A diary for a representative four-week period to show your work-from-home pattern;
- Receipts showing the amount you spend on assets purchased during the financial year and the percentage of the year that you used your depreciating assets exclusively for work;
- Receipts for cleaning expenses in a dedicated work area;
- Electricity bills to calculate the actual cost of heating, cooling and lighting your work space;
- Itemised phone and internet plan bills to calculate the percentage of work use over a four-week representative period; and
- Receipts to calculate the cost of computer consumables and stationery.
To learn more about the actual cost method, please refer to the ATO website or to a registered tax accountant.
The fixed cost method
Similar to the shortcut method, using the fixed cost method, you can claim a deduction of 52 cents for each hour you work from home for the additional running expenses you incur.
Unlike the previous two methods, you must have a dedicated office space to claim the following:
- Decline in value of home furniture and furnishings;
- Electricity and gas for heating, cooling and lighting your workspace; and
- Cost of repairs to your home office equipment, furniture and furnishings.
To claim using this method, you must keep a record of either the actual hours you spent working from home during the financial year or a diary for a representative four-week period to show your usual work-from-home pattern.
You will also need to separately calculate your work-related use for:
- Phone and internet expenses,
- Computer consumables and stationery, and
- Decline in value of equipment – such as phones, computers and laptops.
For these expenses, you must show records, such as receipts or written evidence of the amount spent on expenses and depreciating assets you purchased, phone accounts differentiating work-related calls and private calls, and a diary documenting your hours working from home.
To learn more about the fixed cost method, please refer to the ATO website or to a registered tax accountant.
Records you must keep
No matter what calculation method you choose, as outlined above, you must keep a record of the number of hours you have worked from home. Some examples of what a record may consist of a timesheet, roster, diary, or similar documents or programs that outline the hours you worked remotely.
If you choose to use the fixed cost or actual cost method, you must also keep a record of any home office expenses that you choose to claim. To learn more about what these records include, click here.
Expenses you can’t claim
On the flip side, there are certain expenses that you cannot claim under these work-from-home deductions. This includes:
- General household items your employer may have otherwise provided for you at work, such as paper towel, coffee, tea and milk.
- Costs related to your children and their education, like online learning, teaching them at home or buying equipment for their homeschooling, such as desks.
- Items that you’re reimbursed for, paid directly by your employer or the decline in value of items provided by your employer, such as a work laptop or mobile phone.
- Time spent not working, such as homeschooling your children or your lunch break.
- Occupancy expenses, such as rent, mortgage interest, water and rates.
What happens if I have been put on leave or temporary stand-by?
If, due to COVID-19, you were put on leave or are temporarily stood down, your employer may pay you in regular payments or in a one-off payment.
Regardless of their frequency or whether these payments are funded by the JobKeeper Payment scheme, the ATO considers them the same as your usual income payments from your employer. This means that you must:
- Declare them as wages and salary on your tax return, and
- Pay tax on them at your normal marginal tax rate.
Please note that if you are receiving less than your usual pay, you will have to pay less tax, which occurs automatically on your payroll statement.
What happens if I was fired or made redundant?
If you were fired or made redundant due to COVID-19, you may still receive payments from your employer.
If your employment is terminated you may receive payments from your employer.
These payments can have up to three parts:
- Concessionally taxed (taxed at a lower rate than your marginal tax rate)
- Taxed at your usual marginal tax rates.
The tax rate depends on the type of payment. The tax return instructions will explain how to include these amounts in your return.
If you are genuinely made redundant, meaning your employer has made a decision that your job no longer exists and your employment is terminated, your redundancy payment is:
- Tax-free up to a limit, based on your number of years of service;
- Concessionally taxed as an employment termination payment (ETP) above your tax-free limit;
- Taxed at your usual marginal tax rate for any amount above certain caps.
Your employer will indicate this tax-free amount as a lump sum on your PAYG payment summary.
In both instances, your employer will also pay out unused annual leave and long service leave upon termination of your employment. This will be separately recorded on your PAYG payment summary, again as a lump sum, and may be concessionally taxed or taxed at your marginal tax rate, depending on the type of termination, date of accrual and type of leave.
To learn more about taxation of termination payments, click here.
Do I have to include JobKeeper or JobSeeker payments in my tax return?
In short, yes.
As JobKeeper payments are distributed to you by your employer, they will be treated the same as your usual salary and will be included on your income statement as a salary, wages or as an allowance, depending on your circumstances. The ATO will automatically include this information on your income tax return for you.
Workers who applied for JobSeeker won’t have to do anything on their tax return either, as the payments from Services Australia will automatically be included in your tax return at the Australian Government allowances and payments section. However, if you lodge your tax return before this information is included in your MyGov account, you will need to include the amount you received in this section manually.
You also must claim one-off or regular payments after being temporarily stood down due to COVID-19.
To learn more about JobKeeper and JobSeeker requirements, click here.
What happens if I withdrew my superannuation?
If you received early access to your superannuation due to COVID-19, you do not need to pay tax on the amounts released and you do not need to declare them on your tax return.
Up until 1 July 2020, eligible individuals will be able to apply online through myGov to access up to $10,000 of their superannuation – including eligible temporary residents.
This has been extended so that eligible individuals will be able to apply to receive an additional $10,000 from 1 July 2020 to 24 September 2020.
To learn more about early access to your superannuation, click here.
Be aware of scams
Finally, as the ATO always warns – be aware of scammers impersonating the ATO that may try to trick you into paying money or divulging personal information. They may call you or send you an SMS or email telling you that you have a refund or a tax debt to pay.
The ATO will never:
- Send pre-recorded messages to your phone,
- Ask you to provide personal identifying information to receive a refund
- Send you an email or text message with a hyperlink to log onto your mGov or myTax accounts
- Threaten to arrest you over a debt or insist that you stay on the line until a debt is paid.
If you’re unsure as to whether or not it’s the ATO contacting you, don’t reply. Visit their official website to find their contact details and contact them directly to check.
As mentioned periodically in the blog post, please refer directly to the Australian Tax Office website or to a registered tax accountant to ensure that you are correctly filing your 2019-2020 Tax Return.
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