Over the past few months, the COVID-19 pandemic has meant the work environment has changed for many Australians. You could say the office space has become a bit more homely… Though some people have welcomed this new change with open arms, others have felt a bit cooped up – your partner or roommate can be a bit tiresome as your co-worker as well.
At least there’s good news all round, with the Australian Taxation Office (ATO) announcing a new tax deduction rule for those working from home during the COVID-19 pandemic. This means that for the period commencing 1 March 2020 and ending 30 June 2020 there are now three ways that you can choose to calculate your additional deductible running expenses:
- using the shortcut method to claim a rate of 80 cents per work hour for all additional running expenses.
- claim a rate of 52 cents per work hour for heating, cooling, lighting, cleaning and the decline in value of office furniture, plus calculate the work-related portion of your phone and internet expenses, computer consumables, stationery and the decline in value of a computer, laptop or similar device
- claim the actual work-related portion of all your running expenses, which you need to calculate on a reasonable basis.
The simplest method noted above is the newly introduced shortcut method which allows employees working from home to claim 80 cents per work hour for all additional running expenses. To qualify, you don’t have to have a dedicated office space set up—work is work, even if it’s done from the couch in your pyjamas. You will, however, need to be:
- working from home to fulfil your employment duties, and not just carrying out minimal tasks such as occasionally checking emails or taking calls
- incurring additional deductible running expenses as a result of working from home
It is important to note that the shortcut method cannot be used for additional deductible running expenses incurred prior to 1 March 2020.
So, what are additional deductible running expenses? According to the ATO, the shortcut method will cover:
- electricity for lighting, cooling or heating; running electronic items used for work (e.g. your computer), and; gas heating expenses
- the decline in value and repair of capital items, such as home office furniture and furnishings
- cleaning expenses
- your phone costs, including the decline in value of the handset
- your internal costs
- computer consumables, such as printer ink
- the decline in value of a computer, laptop, or similar device
You don’t have to have incurred all of these expenses, but you do have to have incurred additional expenses in some of these categories as a result of working from home during the pandemic. It’s worth noting that if you use the shortcut method to claim a deduction for your additional running expenses, you can’t claim a further deduction for any of the listed expenses.
In order to claim, all of the following must apply:
- You must have spent the money
- The expense must be directly related to earning your income
- You must have a record to prove it (e.g. timesheets, diary notes, or rosters)
This means you can’t claim on items your employer provides, or if you have been reimbursed for an expense. Additionally, if you aren’t reimbursed by your employer, but receive an allowance to cover expenses instead, you must include this allowance as income in your tax return.
The ATO says you can’t claim mortgage interest, rent or rates. You also can’t claim tea, coffee, milk, or other household expenses – and yes, that includes toilet paper.
If you do decide to use the shortcut method at tax time, make sure you include the note ‘COVID-hourly rate’ in your tax return.
After 30 June 2020, the situation with the pandemic will be assessed by the ATO to determine whether the shortcut test can continue to be applied up to an extended date.
The above information is general information only and does not take into account your financial situation and needs. We recommend you obtain additional professional assistance and advice from a tax professional as to the method which will have the best result for you.