Who would have guessed that the impact of COVID-19 would also be felt when preparing your tax return?
With various restrictions in place since March 2020, meaning many people have been work from home, more than ever it is important to understand what expenses you can and can’t claim as a tax deduction.
In recognition that going through expenses and apportioning what relates to work might not be most people’s cup of tea, the ATO has introduced a new method for calculating your deduction for work-related expenses for the 2020 financial year (called the “shortcut method”) with the view to reducing complexity.
We have set out a summary of the three methods of calculating your deductions in the table below.
If you plan on using a method other than the shortcut method, you will need to bear in mind the following general principles when claiming a deduction:
- You must have spent the money.
- The expense must be directly related to earning your income.
- You must have a record to prove it.
So no, that shiny new coffee machine you bought is not likely to be deductible, even if you feel it’s the only way you can get through your working day.
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What you can claim |
What you can’t claim |
Requirements |
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Shortcut method |
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80c for every hour worked at home for the period from 1 March to 30 June 2020.
If you work 38 hour weeks, this would mean a deduction of just under $500. |
Actual costs of your expenses (e.g. utilities and equipment) – the 80c per hour is meant to cover all this. |
Record of the hours you have worked from home (e.g. timesheet, roster, diary, work records).
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Fixed-rate method |
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· 52 cents for every hour worked at home to cover the cost of electricity, gas and depreciation of home office furniture. · Actual costs incurred for phone calls, internet, stationery. · Full cost of work-related equipment costing less than $300 (e.g. PC monitor). · Decline in value of work-related equipment over $300 (e.g. laptops and phones), based on their effective life.
For laptops this is 2 years, desktops are 4 years, mobile phones are 3 years. See link below for ATO’s ruling as to effective life.
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Actual costs of electricity, gas and home office furniture (covered by the 52c per hour deductions).
Non-deductible expenses, e.g: - Snacks - Toilet paper - Coffee, tea and milk - Luxury stationery - Childcare or home schooling costs - Items reimbursed by your employer. |
Dedicated workspace
Comprehensive records: - receipts or other written evidence of amounts spent - statements with breakdown between work and private calls to determine percentage of work-related use for a representative period (4 weeks) - diary covering the representative period showing usual pattern of work - your work-related internet use - the percentage of the year you used depreciating assets exclusively for work. |
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Actual expenses method |
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· Actual cost of utilities, i.e. electricity and gas. · Actual cost of cleaning for the work area. · Actual costs incurred for phone calls, internet, stationery. · Repair costs for equipment and furniture. · Full cost of work-related equipment costing less than $300 (e.g. PC monitor). · Decline in value of work-related equipment over $300 (including furniture and fittings), based on their effective life. |
Non-deductible expenses per above. |
Dedicated workspace.
Comprehensive records (as described above) of all costs. |
Can you claim the value of equipment you bought pre-COVID-19?
You can claim the decline in value attributable to the period you used the equipment for work at home, provided it has not been written off already.
For example, a laptop (which has an effective life of 2 years) bought one year ago will have one year of effective life left. If you used the laptop for work purposes, then you will allowed a deduction corresponding to the decline in value for that period.
Say the laptop was worth $4000, and you used it for work purposes 50% of the time during 1 March and 30 June 2020. The deduction you get is under the prime cost method is:
$4000 × A × B × C = $330
Where:
A = 50%, being the percentage representing 1 year of the 2 year life;
B = 33%, being the percentage representing 121 days of the year;
C = 50%, being the proportion used for work.
In this case, you are most likely already better off claiming under the fixed-rate method than the shortcut method, even if you don’t claim anything else (i.e. approximately $500 vs $654).
On the other hand, if you bought the laptop more than 2 years ago, there will be no deduction.
Can you claim expenses like your mortgage, rent and council rates?
Most likely not if you are an employee simply working from home due to COVID-19 restrictions. These expenses can be claimed for example if you run a small business from home.
The key criteria are:
1. The area claimed for occupancy expenses must be used extensively and systematically for taxpayer's work. This generally requires almost exclusive use for work such that the taxpayer and family have forgone domestic use of that room and/or that the room is not readily adaptable back to domestic use.
2. The home office is not just a mere convenient place to work.
Note you don't get the full main residence exemption if your home is your principal place of business, although you're probably entitled to a partial exemption.
Can I claim a deduction for amounts where my employer provided an allowance?
Yes, but only if the allowance is included as income in your tax return (and assuming it is not a reimbursement).
Can you claim travel from your home office to your actual office?
No - your home is still a private residence and you cannot claim your trip from home to your regular workplace.
Is Jobseeker tax-free?
It depends. Jobseeker will still constitute income, so you will need to include it on your tax return. If you remain under the tax-free threshold (taking into account all your other income), then you will not need to pay any tax. If your income is over the $18,200 threshold, then you will need to pay tax.
Early super withdrawals
Please be warned that if you made an early withdrawal of your super improperly, there is a good chance the ATO may catch you in an audit. To have been eligible for the scheme, you must have been made redundant, working reduced hours of at least 20%, be unemployed or be eligible for welfare assistance such as JobSeeker (not JobKeeper), Youth Allowance or Parenting Payment. If you are a sole trader or run your own business, and have experienced a 20% or more fall in revenue, you are also eligible.
If you made a withdrawal even though ineligible, you will be liable to pay tax on the amount withdrawn as well as penalties. If this is your situation, the best way forward is to come clean and make a voluntary disclosure. If you need assistance in this regard (or any other tax matters), please feel free to contact us.
Link to ATO website: Home office expenses
Link to ATO website: TR 2019/5 – Income tax: effective life of depreciating assets
https://www.ato.gov.au/law/view/document?DocNum=0000014624&PiT=99991231235958&FullDocument=true
