How to claim working from home deductions and depreciation

We have been transitioning from the workplace to the home office slowly over the years but throw a pandemic into the mix and we are now talking about a mass migration! In fact, research from Roy Morgan shows over 4.3 million people (32% of working Australians) have been ‘working from home’ (WFH) during the last few months since the COVID-19 pandemic shut down large parts of the Australian economy.

 Now that you’ve setup your home office, what sort of deductions can you claim?

Annoyingly, it depends on your exact situation, but I will do my best to break it all down into the following categories.

  1. Working from home during COVID-19

The Australian Taxation Office has set up some dedicated rules for working from home during the pandemic, including a temporary shortcut method which is absolutely smashing. The shortcut period began in March 2020 and is due to end on the 30th of September, but it is likely to be extended in my view.

To qualify for deductions the following must be true.

  1. You have spent the money (seems simple enough)
  2. The expense is directly related to earning your income
  3. You have a record or receipt

That rules out anything provided by or reimbursed by your workplace. If you are given a working from home allowance to cover expenses by your employer, you can still claim deductions, but you’ll have to declare the allowance in your tax return.

Here’s what you can claim:

  • Electricity expenses associated with lighting and air conditioning or powering computers etc. in the area from which you are working
  • Cleaning costs for your dedicated work zone (mine has gotten out of hand I must say)
  • Phone and internet charges
  • Consumables – paper, ink etc
  • Home office equipment like computers, printers and additionally, furniture and furnishings
    •       With furniture and furnishings, you can either claim the
      * full cost of items up to $300 (immediate write-off), or
      * decline in value for items over $300 (depreciate over their effective life)

Sadly, this rules out things like coffee and milk and setting your kids up for online school etc. It also essentially rules out occupancy expenses like rent, interest payments and water rates as your working from home are is not a dedicated business located purely at your home.

Ok, so let us get claiming! What is the best way to actually do it?

There are three methods for calculating your expenses.

  1. The shortcut method mentioned briefly above
  2. The fixed rate method
  3. The actual cost method

Already I can sense your eyes glazing over, but it’s pretty simple. The actual cost method is as it sounds, the fixed rate method is probably not worth even mentioning. So let’s zoom (quite an appropriate choice of words for working from home) in on the shortcut method.

 In the shortcut method you can claim 80 cents for each hour you worked from home as long as you were working from home to fulfil your employment duties and not just carrying out minimal tasks such as occasionally checking emails or taking calls. You also have to actually incur additional running expenses as a result of working from home. In the shortcut method, you don’t need to have a dedicated work area like a private home office.
The shortcut method covers all your deductible running expenses in one fell swoop. You will just need to keep a log of your hours worked.

2. Working from home generally, but not because of COVID-19

The deductions you can claim depend on a few things, like whether you have a dedicated work area and whether your home is your principal place of business. For the purposes of this section, we will assume it’s not your principal place of business.

In this scenario you can claim everything listed in scenario 1 like utilities, phone costs, depreciation on equipment but you can also add depreciation on more fixed items like light fittings, curtains, and carpets. Estimating the depreciation on these items can be difficult given you are less likely to have a receipt for them compared to say your computer or office chair. This is where a quantity surveyor can help.

The main thing you CAN’T claim with your home not being your place of business is occupancy expenses like rent or interest on your mortgage and insurance for example. This normally means you will escape any capital gains tax issues, but it is always best to obtain accountants advice before you claim anything

3. Running your business from home

If your home is the place that you run your business from, and you have a room pretty much exclusively for business purposes, the rules are a little different. The deductions you can claim in this scenario consist of the sum of the scenarios above but add on the occupancy expenses. However, you must be aware of the potential capital gains tax implications, as you may only be entitled to a partial exemption.

The tax ruling TR 93/30 describes in detail the need to satisfy the qualification that they describe as being “the character of a place of business.” Basically, the area you are working from must:

  • Be clearly identifiable as a place of business
  • Not be readily suitable or adaptable for private or domestic purposes in association with the home generally (you have got to love ATO speak)
  • Be exclusively used for carrying on a business
  • Be regularly used for visits of clients or customers (this may not apply, but it would certainly help satisfy the ATO)

You can search for the ruling on the ATO website as it has a few examples, but I’ve given you the most important pieces and saved you the trouble of having to have 6 coffees just to finish all ten pages.

Now I must disclose that I am not an accountant, and this is intended merely as a guide to help you have the appropriate conversation with yours. Nevertheless, I hope it’s been useful and if you need any assistance with calculating depreciation deductions, we’re happy to help.

Best of luck navigating the demands of work whilst dodging zoom calls because you’re not wearing pants, children, pets and that neighbour that always seems to be mowing when you need a moment of quiet.