Working from home became a reality for so many of us in 2020. Since then, this hybrid way of working has continued to play a core role in the very structure of our working economy. What this shift has also showed is how beneficial working from home can really be, encouraging those who are used to the office lifestyle to negotiate time to work from home as an employment benefit. Aside from the benefits of convenience and work/life balance it can afford, working from home can result in you paying less tax. This article highlights what expenses you can claim whilst working from home as tax deductions and how to complete your tax return using the actual cost method, fixed-rate method and shortcut method.
Why is it important to know which WFH tax deductions you might be eligible for?
The most obvious answer to this is, of course, the money you can save from work from home tax deductions. However, understanding exactly what additional running expenses you can claim on your tax return could open your eyes to new opportunities to further your career or business. Whether that be building your knowledge, giving you the opportunity to try tools or upgrading your home office equipment, understanding the deductions that the Australian Taxation Office (ATO) allow is important.
There is no maximum amount or cap on the amount you can claim, so as long as all of your tax deductions are calculated correctly, you could look to save yourself a significant amount of money on your next tax return.
How does claiming running expenses for the home work?
Claiming a tax deduction for home office expenses isn’t as simple as saving receipts for every purchase and adding them into your tax return. There are several categories of both large and small expenses which can be claimed back as work related.
Does this apply if you’re employed by someone else?
Since the shift to remote (Covid-19 safe) working, you can claim tax deductions for the time you did (or are still) working from home, including deductible running expenses.
Whether you work for yourself or are involuntarily working from home, let’s dive into the different categories available as claiming expenses.
First up in your home tax deductions, we have your bills. Just like an employer who owns or rents an office, you can claim back both occupancy expenses and running costs of the time spent working at your home office. If your home office is your core place of work or if you at least have an area set aside for working from home, you can claim aspects of your living costs in your tax deductions. These can include:
- Phone and internet expenses (e.g. your internet bill and work related phone calls)
- Heating, cooling and lighting
- Electricity expenses
- Water bills
- Rent payments and mortgage interest
- Work cleaning costs (cleaning of your home office)
How to work out your deductible bills
What aspects of these deductions you can claim will all depend on whether it is your core place of work and whether your have a dedicated workspace (i.e. if you have a home office which is a separate room or building or if you just work in the dining room, for example).
If you have a dedicated home office space and it is your core place of work, you’ll be able to claim occupancy expenses.
If you run your own business from home but don’t have a dedicated workspace, then you will be able to claim the remaining portion of expenses, as long as they’re directly related to working from home.
Employees generally can’t claim for any occupancy expense such as rent or mortgage interest, but can claim for running costs such as internet costs, heating, lighting or cleaning related to working.
Enlisting the help of a registered tax agent at tax time is a deductible expense. Further, they can not only help you to do your tax return online but give you professional advice on how to actually claim these very deductions. Tax agents are your go to at tax time!
This is what you might think of when it comes to classic tax deductible expenses. These small expense items can all add up to make quite a difference. This may include things like:
- Computer consumables (e.g. printer ink, printer paper, etc.)
- Note pads
Much like all of the other categories, these supplies could also be used for non-work related purposes so it’s important to only claim deductions on reasonable quantities of use for your role. For example, buying 200 printer ink cartridges in the space of a month as a copywriter to claim a deduction on all of these purchses is likely to be flagged in your tax return, which may result in an audit.
Home office renovations and upkeep
Having the right environment to work from home in can make a massive difference to both your productivity and headspace. That’s why you can claim back home office furniture that is used to create a home office space. All the following forms of furniture qualify:
- A working desk
- Ergonomic chair
For small items under a certain, you can apply for a full deduction. For higher value items, you can claim a decline in value deduction. This decline in value will be calculated and be spread over the item’s perceived lifetime, essentially writing off the cost over several years. This is called depreciation, and we recommend you seek tax advice around this.
It is important to note that not all items you buy for an office are deemed essential. An armchair or sofa, for example, is not furniture that would be eligible for deductions. These may be added for aesthitics, but they’re not directly for work related use.
This applies to specific pieces of equipment which allow you to do you job. Dependent on what your job is and the equipment you need this can vary, but some items may include:
- Your laptop
- Mobile phone (used for work related calls)
Unless they’re supplied by your employer, all of equipment can be rolled into your home expenses. This does not apply to any equipment purchased for other members of your family, such as an iPad for homeschooling your kids.
Maybe you want to up-skill in your role with an online course or want to take your own business to the next level with a certification – you may be able to claim these back on your tax (as long as they’re not being covered by an employer). Learning resources and tools which count as home expenses include:
- Online learning
- Relevant books or workbooks
- In person certifications or workshops
- Educational software (for yourself)
To claim these back as home office expenses, keep all records of payment and ensure that they are work costs related.
Finally, we have travel. While it might seem contradictory, even if you work from home there are of course some instances where you may need to travel for work. Some examples you can claim on your tax return are as follows:
- Car journeys: to and from meetings, to different work sites, to learning courses
- Toll fees incurred by the above
- Car parking
- Taxi fares
- Additional expenses such as meals or accommodation
- When you attend a work related course or conference
- Travel to and from seeing your tax agent
Please note all of these expenses must be recorded and essential to your employment duties. Also, if you’ve already claimed these travel expenses back in a different section of your tax return, you’ll not be eligible to claim again.
How do you declare your work from home tax deductions?
Actual cost method or actual expenses method
This is the most time consuming method of them all. You essentially have to prove all expenses and their actual costs in relation to your work. This manual approach would entail logging your energy usage, internet usage, kilometres driven and phone time spent, for example, and working out the work related proportion. The granularity of this approach would mean that you would have to look at your usage per hour and calculate consumption based on your working hours – and consider your lunch break times too. You would then add on any other expenses incurred over the year.
This sounds complicated because it is. But you can work with a tax agent to deliver this return – and it has the potential to save you more money than the other methods.
This gives you a fixed rate of 52 cents per hour worked at home deduction. The fixed rate method is great if you have your own dedicated work area, phone and your own internet for work. All these factors make it simple to claim a deduction of 52 cents per hour and any additional deductible running expenses such as internet expenses, computer consumables, office equipment and decline in value of furniture.
The fixed-rate method for home office expenses is a lot simpler than the actual cost method and eliminates the need to figure out the exact work related portion of bills or per hour costs.
Finally we have the shortcut method. This was introduced during Covid-19 for those forced to work from home, as affected by the pandemic. It offers a 80 cents per hour for every hour worked at home. The shortcut method, however, is only applied from March 1 2020 and June 30 2021. To prove your eligibility for the shortcut method on your tax return, you must have logs of your time working either in time sheets or a diary. This will cover all costs such as running costs, decline in value and other expenses.
Who is eligible for home office deduction?
Anyone who works from home full time or has had to because they cannot go to an office. Whether you have a home office or not, you can still claim some expenses.
How do I calculate my home office deduction?
This all depends on what method you use. You can use the fixed-rate or shortcut method which will supply you with a set rate of deductions. However, if you have a lot of expenses and are great at tracking you can calculate it manually within the actual expenses method.
What is the standard deduction rate for home office?
Between March 2020 and June 2021, the standard deduction in 80 cents per hour worked at your home office. If you go for the fixed rate, you can claim 52 cents per hour worked at home.
What expenses should my employer pay if I work from home?
This is all dependent on your employer. Some will cover equipment however if they are remote company, they may not. Any expenses not covered by your employer, you may be able to can claim back.