With the end of the financial year closing in, it’s time to think about making an appointment with your accountant and knowing what you can claim, especially if you’ve been working from home more than any other year previously.
In recent news, the Australian Taxation Office (ATO) has announced this year they will be cracking down on work-related expenses due to the increased number of more people now working from home.
Not just here in Australia but worldwide, we’ve witnessed a historic shift in how companies offer their employees work from home benefits due to the Covid-19 pandemic. While previously companies offered the ability to WFH as a perk, it’s now become more of the norm. In one US article, it’s predicted that by 2025 it’s highly likely an estimated 70% of the workforce will be working remotely at least five days a month.
It’s predicted this will be a global trend, and if 2020 figures were anything to go on, work-related expenses are set to increase once again. Last year figures from the ATO show about 8.5 million people claimed nearly $19.4 billion in work-related expenses in their 2020 tax returns, and this year that number is expected to spike.
With more people working from home than ever before, knowing what you can and can’t claim this year is essential.
What is the ATO’s rate for your time spent at home?
Previously the standard calculated rate for WFH has been 52 cents per hour. However, as of March 2020, the ATO has introduced this to 80 cents per hour as a shortcut method of calculating expenses. The rate is accessible for any work conducted at home after March 1 (the ATO will review the ongoing timeline after June 30). The requirements around identifying a dedicated workspace have also been removed.
The shortcut method covers all your working from home expenses, such as:
- Phone expenses
- Internet expenses
- The decline in value of equipment and furniture
- Electricity and gas for heating, cooling and lighting
What isn’t covered when you work from home?
This year, the ATO’s data analytics will be on the lookout for unusually high claims, mainly where someone’s deductions are much higher than others with similar jobs and incomes. They will be looking at when people significantly increase their expenses in the areas of car, travel and work clothing expenses. It stands to reason that if you’re working from home more, you shouldn’t need to be claiming more on travel expenses and laundering work clothing for example.
While utilities will be included in the cents per hour method, claiming a portion of your rent or mortgage won’t be in the general case of claims. If you simply work from home as an employee and your typical office is a company office, you won’t be able to claim rent or mortgage repayments.
The new way of backing up your claims has also changed, and it’s not quite enough to show your electricity bill invoices and claim a portion. Now, the ATO requires you to back up your claims and prove how much of your home-office use is for work.
How do you make a WFH tax claim and back it up?
However, you choose to record your home-office use for tax, be sure to keep your accounts in order. There are two main methods for doing this.
1. Diary and running expenses
This involves recording the time you spend working from home and addressing how that time compares to the rest of the hours used in that space. Having a physical or electronic diary of your days at home and records of hours is what the ATO is looking for as proof. Once you have logged hours of when you work from home, your accountant can calculate household expenses and apply the percentage.
2. ATO rate per-hour
If you are unsure which method to use for claims or what to claim, contact us at Total Accounting Partners, and we’ll happily guide you through the new claim’s procedures.
Our tax advisors at Total Accounting Partners are happy to help you understand and navigate the end of the financial year for your business and will be able to help you with any legitimate tax queries. Contact us today!
Jason is the director at Total Accounting Partners on the Sunshine Coast and in Redcliffe. He has been working as an accountant for over 16 years. He has experience in Public, Corporate, Management and Government accounting services and all aspects of accounting including Tax Planning, Superannuation, Structuring and Acquisitions. Jason is Xero certified and lead the team to Gold Partners with Xero.