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Working from home: tax deductions you can and can’t claim in 2021

Due to the COVID-19 pandemic, many people across the country have worked from home at some point in the last year. The Australian Bureau of Statistics (ABS) found that in February this year, 41% of Australians worked from home at least once, compared to 24% in March last year.

Where you work has implications for what deductions you can claim at tax time. Whether you’re an employee of a business or you run your own business from home, you may be wondering how working from home affects what expenses you can claim as deductions on your tax return.

Deductions are expenses you can claim that reduce your taxable income, which reduces how much tax you pay. Most of these deductions are directly related to how you earn your income, however there are some that are not work-related.

In this article, we break down exactly what can and can’t be claimed as deductions on your tax return if you work from home.

What can employees claim on tax when they work from home?

Statistics from the ABS have shown that prior to the pandemic, 12% of Australians worked from home most days, but this number skyrocketed to 31% in September 2020. Given so many people are new to working from home, it’s important that workers understand the ways their tax deductions might be different.

Deductions you can claim if you’re an employee working from home include:

  • Electricity costs associated with heating, cooling and lighting the area where you work, plus running items you are using for work
  • Cleaning costs for a dedicated working area
  • Phone and internet expenses
  • Computer consumables like paper and ink, plus stationery
  • Home office equipment, like computers and furniture - you can claim either the full cost of items up to $300 or the depreciation of items over $300.

To be able to claim these deductions, you must not have been reimbursed for these expenses by your employer, they must relate to how you earn your income and you must have a record to prove them.

Costs you cannot claim on tax when you work from home

  • The cost of coffee, tea, or other general household items that you would usually have provided for you at work
  • Costs related to children and their education, like buying them a desk for at-home schooling
  • Items that you’re reimbursed for by your employer
  • Time spent not working, like on your lunch break
  • Rent, mortgage interest, water and rates

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How do employees calculate their deductions?

Shortcut method

Last year, due to the increase in people doing their job from home due to the COVID-19 pandemic, the Australian Taxation Office (ATO) introduced the shortcut method for tracking deductions. With this method, you can claim a deduction of 80 cents per hour you worked from home during the financial year between 1 July 2020 and 30 June 2021 if you were working from home to fulfil your employment duties (i.e. not just checking emails every now and then) and you incurred additional running expenses as a result of working from home. These additional running expenses include:

  • Phone expenses
  • Internet expenses
  • The decline in value of equipment and furniture
  • Electricity and gas for heating, cooling and lighting

You must have a record, like a timesheet or diary, that documents the hours you have worked from home. Also, this method does not require you to have a dedicated work area at home.

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Fixed rate method

You can also calculate your deductions by using the fixed rate method, but you must have a dedicated working area to use it. This method allows you to claim a deduction of 52 cents per hour you worked from home, covering additional running expenses like:

  • Electricity and gas
  • Repairs to home office equipment and furniture
  • The decline in value of home office furniture and furnishings, like desks.

With the fixed rate method, you can then claim separate deductions for:

  • Phone and internet expenses
  • Computer consumables and stationery
  • The decline in value of equipment, like phones and computers.

Like the shortcut method, you must have records to prove the hours you have worked in order to use this method of calculating your deductions.

Actual cost method

Another method you can use is the actual cost method, which takes into account the actual cost of the expenses you incurred. This means you must keep detailed records of all purchases you have made, and is usually most beneficial for people with a dedicated work area at home. This method covers additional running expenses like:

  • Electricity and gas
  • The decline in value of home office furniture, furnishings and equipment
  • Phone and internet expenses
  • Computer consumables and stationery
  • Cleaning your dedicated work area.

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What can you claim on tax if you run your business from home?

If you don’t work for an employer and instead work for yourself, you may be able to claim deductions for operating a home-based business.

The ATO classifies a home-based business as one where your home is also the principal place of business. This means the business can be run at home (like a beautician who has clients come to their home) or from home (like an electrician who goes to clients houses to complete their work, but does the administrative work at home).

If you fall into this category, you may be able to claim as deductions on your tax:

  • Occupancy expenses like mortgage interest, rent, rates and house insurance premiums
  • Running expenses like electricity, phone costs and cleaning
  • The cost of motor vehicle trips between your home and other locations if the trip is for business purposes

The shortcut method also applies for people claiming deductions for their home-based business.

Doing your tax return as someone who works from home doesn’t have to be daunting. If you still have questions about your tax return, it’s best to speak to a tax professional or accountant.

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The information in this post is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.

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