Is the ATO working from home tax shortcut the best option?
In response to the pandemic and the increase in Aussies working from home, the Australian Tax Office (ATO) has extended the working from home shortcut method, originally introduced last financial year, until June 30, 2021.
The simplified method allows you to claim a flat rate per hour for all of the expenses associated with working from home.
But is the flat rate shortcut the best fit for you? or could it leave you out of pocket? We talk to JSA Accounting to find out. JSA Accounting is a local Adelaide firm with offices at Reynella and Hindmarsh.
What are the rules carried over from 2020?
Firstly, under the shortcut method, it’s no longer a requirement to have a dedicated home office to make a claim. The kitchen table or couch are allowed (phew!).
Secondly, (and most importantly) you can claim 80 cents per hour for all your running expenses, rather than needing to calculate specific costs. And while an increase to the rate from 52 cents per hour sounds pretty good, depending on your circumstances it may not get you the biggest deduction come tax time.
Before the new shortcut rules came into play there were basically two ways you could make a claim for work from home tax deductions. You could either choose the running expenses (fixed rate) method or the occupancy expenses method. We are going to leave the occupancy expenses method out of this conversation because this is only be claimed by people running a business from home and if you already claim occupancy expenses, it's likely to still be your best option. If you don't use occupancy expenses already, it can get pretty complicated so it’s probably best to get in touch with a tax agent who can work out what’s right for you.
Here’s a breakdown of what’s included in the traditional and new shortcut running expenses method.
Traditional running expenses:
Claimed at 52 cents per hour for heating, lighting, cooling, cleaning, home furniture depreciation, etc. Plus, you could separately claim the work-related portion of your phone, internet, computer depreciation, and other expenses. A dedicated home office is required under this method.
Shortcut running expenses:
You can claim at 80 cents per hour for heating, lighting, cooling, cleaning but, this also includes phone, internet, electricity, and computer depreciation and consumables.
What does this mean?
Basically, it comes down to how much you use your phone and internet when working from home and if there is any new equipment purchased.
You also need to be willing to record your expenses, as one of the main advantages of the new shortcut is that you only need a timesheet to make a claim.
Let’s have a look at a real-life example to get a better understanding.
Michael works from home 40 hours per week. He keeps track of his phone and internet use for the month of April. Michael works out that 60% of his phone use is work-related and 70% of his internet use is also work-related.
Here’s what Michael can claim:
- 40 hours per week x 52 cents x 16 weeks (March- June) = $332.80
- 60% of his $120 phone bill x 4 months = $288
- 70% of his $100 internet bill x 4 months = $280
Michael’s total work from home claim (March - June) = $900.80
Here’s what Michael can claim:
- 40 hours per week x 80 cents x 16 weeks (March- June) = $512.00
- No phone or internet can be claimed as it’s included in the 80 cents = $0.00
Michael’s total work from home claim (March- June) = $512.00
So, you can see Michael’s working from home deduction claim would be $388.80 higher by using the traditional method at 52 cents per hour. Totally worth the extra record-keeping effort, if you ask us!
However, this isn’t always the case. For example, if Michael’s company provided him with a laptop, phone, and internet dongle he would be better off using the shortcut method and getting 80 cents per hour for his running costs since he wouldn’t be able to claim his phone and internet separately.
It’s important to remember that for any claim you must have paid for the expense out of your own pocket. It must be directly related to your work and you can't have been reimbursed for the expense already.
As you can see, the shortcut will affect everyone differently. It pays to spend a bit of time working out whether the 80 cent shortcut method really is the best option for you, and always chat to a tax agent if you're not sure. Remember it's the ATO's job to collect taxes, not help you get the best possible refund.
Find out more about working from home tax deductions by visiting the JSA Accounting website.
This is general advice only and doesn't take into account your objectives, financial situation or needs. Credit Union SA has received permission from JSA Accounting to provide this information. It does not have a relationship with JSA Accounting. The information provided is to be used as a guide only and Credit Union SA does not endorse any of the information provided nor does it endorse JSA Accounting as a provider of taxation advice. You will need to consult with a registered tax agent before acting on the material provided.