Claiming tax deductions for working from home due to coronavirus is being made easier.
The Australian Taxation Office (ATO) is introducing a new method which will allow people to claim 80 cents per hour for all their running expenses, rather than needing to calculate costs for specific running expenses.
The change will apply from March 1 to June 30, after which the ATO will review the arrangement for the next financial year as the COVID-19 situation progresses.
“If you choose to use this shortcut method, all you need to do is keep a record of the hours you worked from home as evidence of your claim,” ATO assistant commissioner Karen Foat said.
“We needed something to help people through this time to make it easier to work out how much they can claim.
“We think the 80 cents per hour method is much simpler for people.
“It’s quite generous and we envisage a lot of people will want to use that rate.”
Multiple people living in the same house will be able to claim the new rate.
“For example, a couple living together could each individually claim the 80 cents per hour rate,” Ms Foat said.
And the requirement to have a dedicated work-from-home area has also been removed.
“This recognises that many taxpayers are working from home for the first time and makes claiming a deduction much easier,” Ms Foat added.
The arrangement does not prohibit people from making a working-from-home claim under existing arrangements, where you calculate all or part of your running expenses.
“Claims for working-from-home expenses prior to March 1, 2020 cannot be calculated using the shortcut method and must use the pre-existing working-from-home approach and requirements,” Ms Foat said.
If the federal government announces a prolonged lockdown extending into the next financial year, the ATO is likely to extend the new claiming method.
“We can’t predict the future … but if people are still being encouraged to work at home by the government then we would extend it into the new financial year,” Ms Foat confirmed.
ATO expects fewer reviews if people use new method
Each year, the ATO pays out tens of billions of dollars in tax deductions, the highest being for work-related expense claims and rental claims.
In the 2017-18 financial year, there were almost nine million taxpayers claiming $21.7 billion in work-related expenses.
Ms Foat said that number could rise, given many people are working at home for the first time.
“We are expecting a lot of people to be working from home and to be claiming deductions this year,” she said.
And she said the ATO “definitely” believed the new method would cut down on the need for reviews and audits, because it was simpler and reduced the chances of people making mistakes.
The ATO is also reminding people that the three golden rules for deductions still apply.
“Taxpayers must have spent the money themselves and not have been reimbursed, the claim must be directly related to earning income, and there must be a record to substantiate the claim,” Ms Foat said.
You can’t claim tea, coffee or toilet paper as a work-related expense
Ms Foat said many Australians were asking the ATO if they could claim items like children’s education expenses, as well as tea, coffee and toilet paper which used to be supplied by employers in the office.
The short answer: No.
“Just because you have to provide those things for yourself doesn’t make them deductible,” she said.
“You cannot claim your rent or mortgage [unless it is an investment property].”
And regardless of what method people use, they need to keep good records.
“For the shortcut method they really need a record of the hours they are working from home,” she said.
“For many people it is a record of their time sheets. For others it may be an Outlook calendar [or] keep a diary.
“If it did come to an audit situation, we would ask people to obtain evidence from their employers.”
If you want to use the old 52c method to claim, you must apportion properly
Ms Foat said people still had the option to use the old claiming method to claim for specific items, but this may prove trickier to calculate.
This is known as the 52 cents per work hour method for claiming items such as heating, cooling, lighting, cleaning and the decline in value of office furniture.
Taxpayers can also use this old method to calculate the work-related portion of phone and internet expenses, computer consumables, stationery and the decline in value of a computer, laptop or similar device.
But under the 52 cents method taxpayers will need to apportion their use between what is personal and what is work-related, and must do so on “a reasonable basis”.
Ms Foat said in situations with “mum in one room, dad in another, kids doing school online … it gets difficult to work out whether data is used for your work”.
“You’d still need to work out what your private use and work use is,” she said.
Assistant Treasurer Michael Sukkar said the new arrangements did not prohibit Australians from making a standard working-from-home claim under previous rules.
“Today’s announcement is yet another demonstration of how every arm of government is working to keep Australians in jobs and businesses in business, and to build a bridge to recovery on the other side,” he said.
Confused? The ATO gives this example of how the arrangement might work:
Bianca is an employee who works as a copywriter and editor.
Bianca starts working from home on March 16, as a result of COVID-19, and replaces her face-to-face meetings with online video conferencing.
Bianca has just bought a new laptop, desk, chair and stationery.
She also wants to claim some additional gas, electricity, phone and internet costs due to working from home.
Under the shortcut method, Bianca can now claim all her expenses under a rate of 80 cents per hour. She will need timesheets or some other form of legitimate evidence to show how many hours she has worked.
Bianca can also decide to claim using existing working-from-home calculations.
Under that method, Bianca can claim the desk, chair, gas and electricity under the 52 cents per hour rate, but would need to work out the decline in value of the laptop, and calculate the work-related portion of the laptop, stationery, phone and internet.