The Australian Taxation Office (ATO) has introduced a new way to claim tax deductions for working from home in the wake of the COVID-19 pandemic.
As such, there are now three methods you can use to calculate home office expenses:
- The newly introduced COVID-19 rate of 80 cents per hour, which is only available from 1 March 2020 to 30 September 2020
- The standard (non COVID-19) rate of 52 cents per hour
- Actual costs (this is not covered in detail in this blog post, but further information is available via the ATO’s website)
The objective of ATO’s newly introduced hourly rate is to make claiming the expenses associated with working from home easier for taxpayers. However, as everyone’s circumstances will be different, Online Tax Australia recommends that you seek professional advice from an expert tax agent on which calculation method will give you the best possible outcome.
The Newly Introduced COVID-19 Rate of 80 cents Per Hour
Under this method, individuals required to work from home due to COVID-19 can claim a home office expense of 80 cents per hour, for each hour you worked from home. This method is available from 1 March 2020 to 30 September 2020.
If you decide to use this calculation method, you cannot claim any other additional costs associated with a home office, such as internet expenses, phone expenses, stationery, or the depreciation of a laptop, or any other equipment or furniture.
You don’t need to have a dedicated work area to use this method. However, you must keep a record of the number of hours you have worked from home, such as a timesheet, roster, or a diary.
The Standard (non COVID-19) Rate of 52 cents Per Hour
Under the standard (non COVID-19) method, you can claim a home office expense of 52 cents per hour, for each hour you worked from home. This method is always available.
The standard rate is designed to account for the cost of electricity and gas for lighting and heating, and the decline in value in furniture and furnishings.
A work-related portion of several other expenses can then be claimed in addition to the 52 cents per hour, such as: internet expenses, phone expenses, stationery, computer consumables and the decline in the value of equipment.
So, if you decide to use the 52 cents per hour rate during the COVID-19 period, then you can claim for any additional eligible expenses—should you have these.
To use this method, you need to have a dedicated work area, such as a home office and you must keep written records.
How to Know Whether to Use the COVID-19 Rate or the Standard Rate
The right hourly rate calculation option for you will depend entirely on your specific circumstances.
Here are some (very) general examples:
- Fred normally works in his employer’s office in the city. Since mid-March, he has been working from home due to COVID-19. His employer has covered all costs associated with working from home, including internet expenses, phone expenses, and a laptop. In this example, Fred would likely be best to opt for the COVID-19 80 cents per hour method.
- Stephanie normally works three days a week in her employer’s office, and two days a week from home. Since March, she has been working from home five days per week. While her employer covers her phone expenses, and provides her with a laptop, she pays for internet and her furniture. In this example, Stephanie might be best to opt for the COVID-19 rate method from March until the end of the financial year, and the standard (non COVID-19) rate for the rest of the year.
Online Tax Australia suggests that hourly home office claims should be separately shown on your tax return.
Home Office $$$$ COVID-19 hours at $0.80 for XX hours
Home Office $$$$ Non COVID-19 period at $0.52 for XX hours
Other eligible deductions can then be claimed separately during the period where the 52 cent hourly rate has been claimed:
Internet $$$$ Business use of internet eg 20%
Stationery $$$$ Printer cartridges etc
Equipment Depreciation $$$$ Laptop purchase
Keep in mind that Online Tax Australia recommends that you seek professional advice from an expert tax agent on which home office tax deductions expense calculation method will give you the best possible outcome.