If working from home is now part of your regular working week, it’s important to know what tax deductions you might be able to claim and it’s equally important to keep good records.

You’ll want to make sure you get everything you’re entitled to, but if you’re claiming working-from-home expenses, be aware that it’s easy to make mistakes. Even if you’ve claimed before, there are changes you need to know about. 

The Easy Way to Get Your Tax Deductions Right

There are two options to calculate your working-from-home deductions: the fixed rate or the actual cost method, which requires more extensive record keeping. 

SEE ALSO: What Tax Deductions Can You Claim When Working From Home?

Common Tax Mistakes to Avoid

Infographic on six mistakes to avoid when you claim work-from-home tax deductions in Australia, including double dipping and not keeping records. 

The Australian Taxation Office (ATO) is on the lookout for over-claiming. Big deductions from internet, phone and electricity can sometimes raise red flags if they seem too high for the type of work.

“Good record keeping will ensure you’re claiming what you’re entitled to and will avoid raising any red flags,” says Rob Thomson, ATO Assistant Commissioner and tax time spokesperson.

Common mistakes employees make in claiming work-related deductions include:

Mistake #1: Failing to Keep Records 

To claim a working-from-home deduction, you must keep records. There are two methods you can use, each with different record keeping requirements.

The first is the fixed rate method, where you can claim a set rate per hour worked at home to cover the costs of energy expenses, phone, internet and stationery used while doing your job. For this method you need to keep track of the actual hours you worked from home, recorded at the time you work them, as well as 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 the phone and electricity bills. You will also need to keep records for items and expenses you claim the decline in value of, such as computers and office furniture.

The second option is to use the actual cost method. For this you will need to keep a record to show how often you worked from home, for example a timesheet or a four-week diary, and for every expense you claim which shows the amount:

  1. you spend on expenses
  2. you spend on depreciating assets and use while working from home
  3. of work-related use for your expenses and depreciating assets

If you have the ATO app, you can use the myDeductions tool to help keep track of your expenses.

Mistake #2: Double Dipping

One thing to watch out for is double dipping, or claiming expenses that your employer has paid for or reimbursed you for. For example, if you use the fixed rate method, you can’t double dip any expenses already included in the fixed rate, such as phone or internet expenses. If your employer supplies your stationery or pays for the cost of your internet or mobile phone plan, you can’t claim that on your tax return. 

SEE ALSO: 10 Deductions You Could Be Claiming

Mistake #3: Claiming Occupancy Expenses

A woman wearing a yellow sweater sits on a black sofa and leans over a white table to use a calculator and look over paperwork.

If you are an employee working from home, you generally can’t claim occupancy expenses, such as rent, rates, mortgage interest and house insurance premiums. 

You can only claim occupancy expenses if you’re running a business and the area of your house set aside for your business has the character of a ‘place of business’. Bear in mind, if the ATO accepts you have such a space in your own home and allows appropriate tax deductions, you may also lose part of your main residence exemption for capital gains tax (CGT) when you sell the property. You can find more about claiming an occupancy deduction for home-based business expenses on the ATO website.

Note: where you work from home and you earn personal services income (PSI) you cannot claim a deduction for rent, mortgage interest, rates and land tax for a residence where those expenses relate to your PSI.

Mistake #4: Claiming Personal Use of Phones and Internet

A man wearing a yellow button-up shirt smiling and talking on a mobile phone while standing in a living room setting.

If you use the actual cost method, you are only able to claim the portion of the cost of your internet and phone usage that is work related. To enable you to calculate this, the ATO suggests you have an itemised bill so you can work out the portion of work use over a representative period, then apply this to the full year. If you’re using the fixed rate method to calculate your working-from-home deduction, phone and internet expenses are already included, so you can’t claim these expenses separately.

Mistake #5: Not Making Any Claim

While it may not seem much, the fixed-rate method adds up. If you and your partner are both working from home, you are both able to claim the fixed rate method, providing you have both kept the required records. 

Mistake #6: Not Comparing Tax Deduction Methods

Take the time to work out which method applies to your circumstances, then determine which gives you the best outcome.

If you regularly work from home, you may be best off using the actual cost method to determine your claim. This involves keeping detailed records of all your expenses. Check out the ATO’s website for calculators to work out what gives you the best outcome for your circumstances – remember, you need detailed calculations and records to support your deduction.

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 2020 and has been updated.

SEE ALSO: Hybrid Working: How to Achieve a Healthy Work-Life Balance