Key Points
Home office expenses will be a target of the ATO this year, and new rules have changed how these are claimed, including increased record keeping requirements that you need to be aware of.
Key Links
We highly recommend you have a read of:
- https://www.ato.gov.au/individuals/income-deductions-offsets-and-records/deductions-you-can-claim/working-from-home-expenses/
- https://www.ato.gov.au/Individuals/Income-deductions-offsets-and-records/Deductions-you-can-claim/Working-from-home-expenses/Fixed-rate-method—67-cents/
- https://www.ato.gov.au/Individuals/Income-deductions-offsets-and-records/Deductions-you-can-claim/Working-from-home-expenses/Occupancy-expenses/
GENERAL WAY TO CLAIM HOME OFFICE EXPENSES
In general there are 2 ways to calculate your home office expenses:
- Cents per hour (or fixed-rate) method
- Actual expenses method
The cents per hour method is the easiest method as it has much less onerous record keeping requirements – and as such is the method we use pretty much all of the time.
The actual expenses method requires you to calculate the actual expenses you incurred, apportioned by the private use of those expenses. When it comes to calculating the amount of electricity that you use at home, which requires working out how much electricity each appliance uses – crazy and pretty much impossible, and as such we very rarely claim electricity this way.
WHAT IS INCLUDED IN THE CENTS PER HOUR METHOD
The cents per hour method allows you to claim 67c per hour that you work from home, and covers the following expenses:
- Electricity, gas, water, etc
- Computer consumables
- Stationary
- Printing consumables
- Mobile phone
- Internet
If you use the cents per hour method, you cannot claim a separate deduction for any of the above items. This means that you may be better off not using this method and claiming actual expenses for the last 5 items on the list (accepting that calculating electricity is impossible), particularly if you have high phone usage or high stationary purchases.
WHAT ISN'T INCLUDED (AND CAN BE CLAIMED SEPARATELY)
Other home office related expenses that can be claimed include things like:
- Depreciation on equipment
- Depreciation on furniture
- Cleaning costs (for a dedicated work area only)
Whether you use the cents per hour method or the actual expenses method, you can claim these items separately and in addition to those other items.
WHAT EVIDENCE NEEDS TO BE KEPT
Under the cents per hour method, you need to keep the following records:
- A log of ALL HOURS worked from home (an estimate is not accepted)
- One document (e.g. invoice) to justify that you incurred additional expenses as a result of working from home – for example a quarterly internet bill, electricity bill, phone bill, etc
If you are using the actual expenses method, you will need full receipts / invoices, and some sort of evidence as to how you decided what proportion of your expenses were private.
WHAT ABOUT INTEREST ON MY MORTGAGE
Expenses like interest on your mortgage, council rates, and other “occupancy” costs are generally not claimable. There is an exception where your home is also your principal place of business and you have a dedicated area of your home specifically set up for this (and that space can’t be used for any other purpose)
The ATO scrutenise this, and expect that your dedicated space is more than a desk in the spare room (even if that room is never used for anything else).
It is important to note that if you do run a business from your home (and particularly if you claim mortgage interest and so on), your home no longer qualifies for the full capital gain exemption when sold – and chances are the tax you pay on sale outweighs the tax you save by claiming a small portion of your interest and council rates.
WHAT HAS CHANGED
There are a few things that have changed from prior years, notably:
- The rate has dropped from 80 cents per hour to 67 cents per hour
- Depreciation of furniture etc is no longer included in the rate
- An estimate of hours worked from home IS NO LONGER ACCEPTED
We note that prior to COVID, phone and internet expenses were not included in the cents per hour method – so if you are reading this thinking “I’ve always claimed phone and internet costs separately”, that is why.
