Your guide to claiming a tax deduction on your home oﬃce expenses.
Right now, a majority of employees and contractors are working from home. This unfortunately comes at an out of pocket cost to you that most employers are not covering due to their own challenges in this COVID-19 environment.
So, we thought we would provide you with a guide to ensure that you claim every expense that you are entitled to. That way you can minimise the financial impact on you.
Below are a list of the most common home oﬃce expenses that you may be able to claim.
Home occupancy expenses
What are home occupancy expenses? Well, this includes rent, mortgage interest, rates, insurance and land tax.
If you’re an employee, you are generally unable to claim these expenses.
There are limited circumstances that you can claim though. This may include:
- The space being used in the home is a place of business and not suitable for private and domestic use.
- When no other work location is provided to an employee by an employer and the employee is required to dedicate part of their home to their employer’s business as an oﬃce; you can claim the por on of these costs that relate to a clearly defined place of business.
If in doubt about which method is best for you to claim, ask your accountant.
Total expenses × floor area × percentage of year that part of your home was used exclusively for work.
Running costs, including electricity, work phone calls, cost of repairs to furnishings used for work
There are two methods that you may be able to use to claim utilities
- Actual cost method: You can hold dairy entries and estimate the percentage of use for work versus personal and domestic use. You would then be able to claim a tax deduction on the percentage of use for work purposes.
- Rate per hour: This is a simpler way to calculate your running expenses. The Tax Oﬃce allows you to claim 52 cents per hour. So if you worked for 40 hours over 10 weeks from home you can claim 40 X 10 X 52cents = $208.
Talk to your accountant about what method will best suit you.
Mobile phone and internet expenses
If you are required to use your phone and internet, which most employees are, you can claim a tax deduction on the work related por on as long as you can substantiate your claim with phone bills, internet or bank statements.
If you don’t keep adequate records, you may be limited to claiming a maximum of $50.
Other oﬃce expenses
If you have to buy any oﬃce assets out of your own pocket, including a desk, oﬃce chair, computer, monitor and mobile telephone that costs up to $300, you can claim a tax deduction on the full cost. Keep in mind that any asset that will be used for both work and personal use needs to be apportioned between business and personal use.
Any asset expense over $300 will be depreciated.
Note: that the depreciation of expenses only applies to assets. Stationery, subscriptions and updates are not assets and the cost can be fully tax deductible.
Computer, mobile phone, tablet or other electronic items
If you’re required to use any of these items, you may be able to claim a tax deduction. If the device costs over $300, you can’t claim the full cost as a tax deduction. The device is depreciated. Desktop computers are depreciated at 50% over 4 years and laptops, mobile phones and tablets depreciated at 67% over 3 years.
Note: that not only do you need to apportion the percentage or work use versus personal use, you will also be required to apportion the percentage of the year that the item was purchased.
For example, John purchases a laptop for $1,000 on the 1st January 2020. He estimates that his work usage is 60%. John’s tax deduction would be worked out as follows:
Total Cost X Depreciation rate X Percentage of work use X Percentage of the financial year the laptop was used for work
$1,000 X 67% X 60% X 50% = $210
Again, you have to be able to demonstrate how you used the device for work and you can only claim the work-related por on your use. Also keep records to show how you worked out your claim. This includes receipt of purchase.
Desks and chairs
If you purchase a desk or chair for your home oﬃce and it costs over $300, the percentage of the expense that can be claimed as a tax deduction will be limited to 10% for desks and 20% for chairs. Apportionment between work and personal use will also apply.
Subscriptions and home oﬃce software upgrades such as Microsoft Oﬃce and Adobe used for work purposes should be fully tax deductible.
For more information regarding the tax deductibility of your home oﬃce expenses, call us on 1300 399 829 and talk to a Tax Eﬀective Accountant today.