A guide to claiming home office expenses in your tax return this year

Daniel Slabicki

If you performed some of your work from your home office in the previous financial year, you may be able to claim a tax deduction for the costs you incurred running your home office, even if the room is not set aside solely for work-related Purposes.

COVID-19 impact - New arrangements

The Australian Taxation Office (ATO) introduced special arrangements last year due to COVID-19 to make it easier for people to claim deductions for working from home.

The new ‘shortcut method’ allows people to claim a rate of 80 cents per work hour for all their running expenses, rather than needing to calculate costs for specific running expenses.

Multiple people living in the same house can claim this rate. For example, a couple living together could each individually claim the 80 cents per hour rate.

Working from home claims - which method should you choose?

There are three ways you can choose to calculate your home office expenses for the 1 July 2020 to – 30 June 2021 period:

  • Shortcut method - claim a rate of 80 cents per work hour for all additional running expenses.
  • Fixed rate method – claim a rate of 52 cents per work hour for electricity, gas, cleaning and the depreciation of office furniture, plus calculate the work-related portion of your phone and internet expenses, computer consumables, stationery and the decline in value of a computer, laptop or similar device.
  • Actual cost method - claim the actual work-related portion of all your running expenses, which you need to calculate on a reasonable basis.

Regardless of which method is chosen, the following must be adhered to:

  1. Taxpayers must have spent the money themselves and must not have been reimbursed.
  2. The claim must be directly related to earning income.
  3. There must be a record to substantiate the claim.

Expenses you can claim

If you are claiming under either the fixed rate method or the actual cost method the following expenses can be claimed.

Running expenses

A deduction can be claimed for home office running expenses including electricity, gas and depreciation of office furniture (e.g. desk, tables, chairs, cabinets, shelves, professional library).

As with making a motor vehicle claim, diary/logbook evidence should be maintained for a four-week period to establish a pattern of working from home and justify the number of hours you are claiming.

No deduction is allowed where no additional costs are incurred such as when you work in a room where others are watching TV, or the income producing use of the home is incidental.

You will need receipts for:

  • Home office equipment used for work purposes.
  • Repairs relating specifically to the home office or furniture and equipment used for work purposes.
  • Cleaning expenses of home office.
  • Any other day-to-day running expenses for the home office.
  • Diary entries to record your small expenses ($10 or less) totalling no more than $200.

Telephone (inc. mobiles) + internet costs

If work or business calls can be identified from an itemised telephone account, then the deduction can be claimed for the work or business related portion of the telephone account.

A representative four-week period will be accepted as establishing a pattern of internet and telephone use for the entire year.

Telephone rental expenses may be partly deductible if you are “on call” or required to contact your employer or client on a regular basis.

Depreciation on equipment

You can claim depreciation on home office equipment including computer, printer, photocopier, scanners, modem etc., but the claim must be apportioned to the equipment’s use for work or business purposes. If using the actual cost method, you can also claim depreciation on office furniture and furnishings.

Occupancy expenses

Claims for occupancy expenses are allowed only if the home is used as a place of business and the claim can be made as an apportionment of total expenses incurred on a floor area basis.

Occupancy expenses include:

  • Rent.
  • Mortgage interest.
  • Water rates.
  • Repairs.
  • House insurance premiums.

Warning: Being able to claim theses expenses may affect your ‘main residence exemption’ for capital gains tax purposes if you sell your house in the future.

When is a home a place of business?

The following factors, none of which are necessarily conclusive on their own, may indicate whether an area set aside has the characteristics of a place of business:

  • The area is clearly identifiable as a place of business.
  • The area is not readily suitable or adaptable for use for private or domestic purposes in association with the home in general.
  • The area is used exclusively, or almost exclusively, for carrying on a business.
  • The area is used regularly for client or customer visits.

If you use your home to carry out income producing activities as a matter of convenience, you are not entitled to a deduction for occupancy expenses. It would be rare for an employee to be able to claim occupancy expenses.

Working with an accountant can help you avoid mistakes when lodging your tax return as well provide you with opportunities to maximise the return available to you. For help with your tax return, please speak to your adviser or contact the Crowe Tax Advisory team today.