As more Australians embrace the work from home lifestyle, understanding what you can claim on your taxes is crucial. The Australian Taxation Office (ATO) allows workers to claim deductions for work-related expenses incurred while working from home. However, it’s essential to understand the different methods for claiming deductions and which expenses are eligible.
Methods for Claiming Running Cost Deductions
The ATO offers two methods for calculating home office deductions: the Fixed-Rate Method and the Actual Cost Method. Here’s a breakdown of each method and what you can (and can’t) claim.
1. Fixed-Rate Method
The fixed-rate method is a simpler way to claim deductions. For the 2023–2024 tax year, the ATO allows you to claim 67 cents per hour for each hour you work from home. This rate covers:
- Electricity & Gas for heating and cooling
- Phone & internet
- Stationery & computer consumables, like printer ink
If you use the fixed-rate method, you cannot claim additional deductions for phone bills, internet, or the depreciation of equipment separately. These costs are already factored into the fixed rate. However you can claim additional expenses not covered by the fixed rate, such as depreciation on office furniture and technology.
2. Actual Cost Method
The actual cost method allows you to calculate your specific work-related expenses if you have incurred additional running costs by working from home. You can claim a portion of your household running costs, such as:
- Electricity and gas, based on the percentage used for work
- Cleaning your dedicated home office
- Phone and internet costs, where you can claim the work-related portion
- Stationery and computer consumables
- Office equipment (e.g., computer, printer), with a claim on depreciation if used for work
An important note to remember when using the actual method, is that you need to calculate the exact percentage of expenses that relate to your work. For example, if you use your internet for 60% of work purposes, you can claim 60% of the total cost. You must also apportion some costs by the size of your dedicated office space in comparison with the total floorplan of the home.
Occupancy Expenses
In addition to running costs, you might also wonder about occupancy expenses—expenses related to the physical space of your home. These includes rent, mortgage interest, property taxes, and home insurance.
Can You Claim Occupancy Expenses?
Generally, employees cannot claim occupancy expenses. Sole traders that use their home as their place of business may be entitled to claim occupancy costs if they have a space that is used exclusively for work. The ATO typically requires that the space is a permanent, dedicated workspace, that is clearly identified as a place of business and unable to be used for private purposes.
Additionally, their may capital gains tax (CGT) implications when selling your home if you claim occupancy expenses.
What You Can’t Claim
Regardless of the method you use, some things cannot be claimed:
- Private expenses: Personal use of your phone, internet, or home appliances cannot be claimed.
- Non-work-related use of equipment: If you use equipment for both personal and work purposes, you can only claim the portion used for work.
- Expenses without records: You must keep detailed records of any deductions that you wish to claim on your tax return.
Keep a Log of Hours Worked
To claim deductions for working from home, you must keep a record of the hours you work from home. Whether you’re using the fixed-rate or actual cost method, a log of hours worked will be necessary to support your claims. This can be done through a timesheet, calendar, or other reliable records.
Conclusion
Knowing the ins and outs of work from home deductions is essential for ensuring you get the most out of your tax return. The fixed-rate method offers simplicity but limits additional claims, while the actual cost method allows for more detailed deductions but requires precise calculations. Always keep a log of your hours worked from home, and if in doubt, consult with one of our helpful accountants to ensure you’re following ATO guidelines and maximizing your eligible claims.
