Working from home some or all of the time has become the new norm for many office workers. Because of this, it’s vital to understand how to appropriately claim expenses incurred while working from home to maximise your possible refund. Follow these expert tax return tips to make the most of your expenses this year.
Make Preparation a Priority
Maximising the amount you could claim back from the Australian Taxation Office (ATO) comes down to preparation and good record keeping. “If you don’t have the paperwork, you can’t claim a deduction,” says Mark Chapman, director of tax communications at H&R Block. “Gather together all the information you’ll need to help you prepare your tax return, including invoices and receipts for work-related expenses.” Of course, not everyone does this and often this results in a lower tax refund.
SEE ALSO: 10 Tax Deductions You Could Be Claiming
Figure out Which Method Is Best for You
When claiming working-from-home expenses, it’s all about working out which method applies to your circumstances, then determining which gives you the best outcome. To use any method, you must meet the working criteria and record keeping requirements.
To claim your working from home expenses, you must be working from home to fulfil your employment duties, not just carrying out minimal tasks, such as occasionally checking emails or taking calls. Also, you must incur additional expenses as a result of working from home.
The fixed rate of a set amount per work hour covers energy expenses (electricity and gas), phone usage, internet, stationery and computer consumables. No additional deduction for any expenses covered by the rate can be claimed if you use this method. You can separately claim the decline in value of assets used while working from home, such as computers and office furniture, and other expenses not covered by the rate.
Your alternative – the actual cost method – “generally produces a bigger deduction than the cents per hour method, but many people find the record-keeping requirement associated with that method too tough,” says Mark.
“Whichever method you use, you’ll need to make sure you have the right records, or your deduction may be disallowed,” says ATO Assistant Commissioner and tax time spokesperson Rob Thomson.
SEE ALSO: Useful Online Tools From the ATO
Record Keeping
Whichever method you choose, there is some record keeping required. The type of records you need to keep will depend on which method you use to calculate your expenses.
To claim a deduction using the fixed rate method, you will need records of:
- the actual hours you worked from home, kept at the time they occur
- evidence for the expenses covered by the rate that you incurred; for example, if you incurred phone and electricity expenses you will need to keep one bill for each
- items and expenses you claim as a separate deduction (not covered by the fixed rate).
For the actual cost method:
- you will need to keep detailed records of all expenses being claimed including evidence of the time you spent working from home over the financial year, such as a spreadsheet of hours or a four-week diary, and records which show how you determined the work-related portion of the expenses you are claiming.
HOT TIP: Financial educator Natasha Janssens suggests making the most of your online banking to keep track of expenses. “Many banks have a built-in categorising ability for transactions, in which case you can mark any work-related expenses as such to make them easier to find at tax time,” she says. But remember, you'll still need to keep your receipts for all claims.
Items Costing Over $300
No matter which method is used, if you purchase assets and equipment for work and it costs more than $300, you can’t claim the full amount immediately. For each of these items, the deduction must be claimed over a number of years (known as decline in value or depreciation). You can claim immediate deductions for equipment valued up to $300 if you use it wholly for work purposes.
What You Can’t Claim
Be aware there are some expenses you can’t claim under either of the methods. These include the cost of items used for children and their education, expenses or items your employer pays for or reimburses you for, and things like tea or coffee for your working-from-home kitchen. An employee working from home generally can’t claim occupancy expenses such as mortgage interest and rent either.
SEE ALSO: How Your Small Business Can Reap the Benefits of Outsourcing
You’ll Need to Apportion Expenses Correctly
Apportionment is very important because you can only claim the work-related portion of an expense.
If you use an item, such as a laptop or printer, for both work and personal use, you need to apportion the cost between the two, no matter whether you’re claiming an immediate deduction or depreciating the asset. For example, if you buy a printer for $295 that you use 80 per cent of the time for work and 20 per cent for private use, you can claim an immediate deduction for $236.
Generate Additional Deductions
If you prepare ahead of the end of the financial year, you can generate some additional deductions, says Chapman, that will give your tax return a welcome boost. These tax return tips include:
- paying any professional or union fees due after June 30 now, to claim the deduction for the whole amount this year
- claiming charitable donations over $2, as long as you have a receipt and the charity is registered as a deductible gift recipient
- if you have some spare cash, making a personal contribution into your super fund, provided this doesn’t mean you’ll exceed $27,500 for the year (including employer contributions). “This can be a great way to boost your retirement savings and claim a tax deduction,” says Mark. “The payment must be made by June 30 and you need to submit a Notice of Intent form with your super fund. Then you need to receive acknowledgement from your fund before you claim the deduction in your return.” You can find a standard form on the ATO website
This is general information only. Seek professional financial and/or legal advice to determine the right outcomes for your business or individual needs.
This article was originally published in 2021 and has been updated.
