Author: Brenda Hutchinson, Partner, TAG Financial Services
In our blog on 1 June 2020 – Tax Planning for Individuals 2020, we discussed some of the key tax considerations in the lead up to 30 June 2020. One of these was claiming a tax deduction for home office expenses.
Due to COVID-19 and the fact that many employees have been working from home (and therefore incurring higher than normal running costs for their home office), the ATO have released new provisions to make claiming a deduction easier.
In addition to the normal methods of claiming a deduction for home office expenses under the fixed rate method or actual cost method (which can still be used if you choose), the ATO has introduced the shortcut method.
The shortcut method will only be able to be used between 1 March and 30 June 2020. Prior to 1 March, you can use either of the existing methods – the fixed rate or actual cost method. Essentially you will have 2 deductions that you will be claiming – a pre COVID-19 deduction and a post COVID-19 deduction.
Shortcut Method
You will be able to claim a deduction of 80 cents for each hour you work from home, due to COVID-19 between 1 March and 30 June 2020, so long as you:
- Are working from home to fulfil your employment duties and not just carrying out minimal tasks such as occasionally checking your emails or taking phone calls; and
- Have incurred additional running expenses as a result of working from home.
What Expenses are included in the Shortcut Method Calculation?
The shortcut method rate covers all deductible running expenses, including:
- Electricity for lighting, cooling or heating and running electronic items used for work (for example, your computer) and gas heating expenses
- The decline in value and repair of capital items, such as home office furniture and furnishings including capital items that cost less than $300
- Cleaning expenses
- Your phone costs, including the decline in value of the handset
- Your internet costs
- Computer consumables, such as printer ink and stationery
- The decline in value of a computer, laptop or similar device
You do not have to incur all of the above expenses, but in order to use the shortcut method, you must have incurred additional expenses in at least SOME of these categories, as a result of having to work from home due to COVID-19.
Can you claim additional deductions?
If you decide to use the shortcut method to claim a deduction for your additional running expenses, you cannot then claim a further deduction for any of the above expenses.
How do you calculate the shortcut method deduction?
You calculate the deduction for additional running expenses using the shortcut method, with the following formula:
Total number of hours worked from home between 1 March and 30 June 2020 x 80 cents
When you calculate the number of hours you worked from home, you need to exclude any time taken as breaks from working i.e. to have your lunch, or to assist your children with home schooling.
For example:
Jenny was working full time. As a result of COVID-19, Jenny’s hours have been reduced to 3 days per week and she is working from home.
During the entire period that Jenny is working from home as a result of COVID-19, she has been completing her timesheet, as she did when she was working from the office. She has factored into her timesheets when she took breaks for lunch, and when she was assisting her two secondary aged children with their home schooling.
Jenny has worked out that during the period she worked from home as a result of COVID-19, she worked a total of 332 hours.
She calculates her deduction as 332 hours x 80 cents per hour – $265.60
What to include in your tax return
When completing your tax return, the amount you are claiming as a deduction under the shortcut method, will be included in the “Other work-related expenses” section of the tax return.
You must include COVID-hourly rate as the description for the deduction.
Remember, the shortcut deduction can only be used for the period between 1 March and 30 June 2020.
Record Keeping
If you intend to use the shortcut method, you must keep a record of the number of hours you have worked from home. This might be a:
- Timesheet
- Roster
- Diary
- Calendar entry
- Some other form of document that documents the hours you have worked
Remember, you will need to be able to substantiate the deduction being claimed, particularly if you are selected for audit purposes.
If you have any questions, please contact us on 03 9886 0800 or via email.
Disclaimer: The information contained is general in nature. Professional advice should be sought before acting on any aspect on this page. Financial planning services provided by TAG Financial Advisors Pty Ltd (ABN 77 154 205 017 AFSL 415632), a wholly owned subsidiary of TAG Financial Services Pty Ltd (ABN 67 075 374 686). Copyright 2020. Please do not reproduce without the expressed written consent of the author.