Working From Home: COVID19 Tax Deductions 2020

COVID19 has disrupted the workplace. Employees’ health and safety have pushed businesses to work from home.

Consequently, several accounting and tax implications have to be considered.

And, the first question that comes to our mind relates to the allowable tax deductions incurred while working from home.

For 2020 Tax Return, the ATO has allowed tax payers to use a new method for their determination of Tax Deductions. This enables employees who worked from home during COVID19 to deduct their Home Office expenses using a simplified method for deduction, The Short Cut Method.

It is time to start to plan for your 2020 Tax Deductions!

 

A NEW METHOD: THE SHORTCUT METHOD

Because of COVID19, the ATO has allowed the utilisation of a new method for the determination of 2020 Tax Deductions. This new method, the Shortcut Method, enables employees who are working from home, to deduct Home Office expenses from their 2020 Tax Return.

Under the Shortcut Method, which is a temporary method only available for the period 1st March to 30th June 2020, employees can claim $0.80/hour for each hour worked from home during this period of time.

In relation to planning this is what you need to know.

This method can only be used to determine your Home Office Tax Deduction, if you worked from home in order to fulfil your employment duties. In other words, carrying out minimal tasks such as occasionally checking email or taking calls will not be considered as the fulfillment of employment duties.

Although you will have to keep a record of the number of hours worked from home to use the shortcut method (by providing a timesheet, a roster, a diary etc.), you do not need to have a dedicated work area to apply this method.

This method covers phone, internet and electricity (for heating, cooling and lighting) expenses.

In addition to this method, two other methods can be used to determine your 2020 Tax Deductions.

If you work from home, you can also either use the Fixed Rate Method or the Actual Cost Method.

 

THE FIXED RATE METHOD

The Fixed Rate Method allows you to claim a deduction of $0.52/hour for each hour worked from home and for the work-related expenses incurred for additional running expenses.

If you choose to use the Fixed Rate Method you will need to keep a record of either the number of hours you worked from home over the year, or a diary for a representative four-week period to show your usual pattern of working at home.

In this case you will need to demonstrate that you have a dedicated work area.

In relation to planning this is what you need to know.

This Fixed Rate Method covers the decline in value of home office furniture and furnishings (for example: desk), electricity and gas expenses (for heating, cooling and lighting) and the cost of repairs to your home office equipment, furniture and furnishing.

However, this method does not include phone, internet, computer consumables and stationery and the decline in value of equipment.

 

THE ACTUAL COST METHOD

Finally, as an employee working from home, a third method is available, the Actual Cost Method.

To use this method, you need to keep a record of the number or hours worked from home during the year, and a diary for a representative four-week period to show your usual pattern of working at home.

In relation to planning this is what you need to know.

This method enables you to claim the additional running costs directly incurred as a result of working from home. This method includes your electricity and gas expenses (for heating, cooling and lighting), the decline in value of home office furniture and furnishing, the decline in value of several devices (phones, computers, laptops or similar devices), phones, internet, computer consumable/stationery and cleaning expenses (only for the work-related part).

However, as an employee, some expenses are unclaimable. It is impossible for you to claim the costs relating to general household items (coffee, tea, milk etc.), children and their education, expense the employee is reimbursed for or directly paid by the employer, or the decline in value of items provided by the employer (laptops, phones etc.), rent, water or mortgage interest.

 

Reference:

https://www.ato.gov.au/individuals/income-and-deductions/deductions-you-can-claim/home-office-expenses/