Due to the large number of people forced to work from home during the COVID-19 pandemic, the ATO have announced an alternative to the simplified fixed-rate method for calculating working from home tax deductions.
There are now two fixed-rate methods you can choose to calculate your additional running expenses. You can use the COVID-19 higher allowance at 80 cents per hour for a set time period, or continue using the existing method of claiming 52 cents per hour, plus other expenses like mobile phone and data usage.
The choice will depend on the nature of your work expenses. Here’s a rundown on the differences.
- New COVID-19 shortcut method
Anyone who worked from home as part of their normal employment duties between 1 March 2020 and 30 June 2020 can now choose to claim a deduction rate of 80 cents per hour to cover likely running expenses (instead of the usual 52 cents per hour). This is intended to make the process easier, without hours of calculations.
This method includes a flat rate to cover electricity, heating, cleaning expenses, stationery, printing costs, and all phone and internet costs.
However, it is important to note that if you choose this method, there are no additional home office expenses allowed. For some people who regularly work from home and use their phone and internet at an increased rate, this may not be the best method to choose even though it offers a higher per hour rate. In fact, the regular 52 cent rate per hour may be a cost saving, as it will still allow you to add extra expenses like any significant phone and data usage incurred through in the course of work.
Case study
Carol works a 37.5 hour week and has very high use of her phone and an extensive internet plan during her working hours. During COVID-19, and for much of the year, she works from her home office. If she chooses to claim the new flat rate of 80 cents for the set period, she would be able to claim a total of $126 for the quarter. However, if Carol kept claiming the usual 52c per hour for working from home and then included her internet bill of $80 per month (at her 80 per cent business use rate), she would be better off because she could claim $192 – a $66 increase.
Rules to claim working from home COVID-19 expenses
- The ATO still needs you to keep records to prove your working hours at home, even if this period was only during COVID-19. These can include timesheets or a diary to demonstrate your working activities.
- The COVID-19 flat rate does not allow you to claim mortgage interest, rent or other expenses associated with working from home.
- You cannot claim additional expenses like tea/coffee, newspapers, and car use.
- B Ordinary fixed-rate method
With the existing fixed-rate method, the claim rate of 52 cents per hour will cover heating, cooling, lighting, cleaning, and depreciation of any office furniture,
However, you can also make a further claim for the costs of phone and internet expenses, computer consumables, stationery, car use, and other expenses if they were incurred as part of your work.
Rules to claim fixed rate method
- You must keep records of the actual hours spent working at home for the year. This could include a diary that tracks your work hours over a four-week period.
- The expenses must be those that you have incurred – you cannot have been reimbursed by an employer.
- You must keep records of all deductible expenses including mobile phone and internet accounts, office stationery receipts and receipts for office equipment.
For more information on claiming expenses relating to working from home go to the ATO site here: https://www.ato.gov.au/Individuals/Income-and-deductions/Deductions-you-can-claim/Home-office-expenses/