The COVID-19 pandemic has dramatically transformed the way we work, with many Australians transitioning to remote work arrangements. As a result, a significant number of individuals are now eligible to claim tax deductions for expenses related to their home office.

In this comprehensive guide, we’ll delve into the various working from home tax deductions available, the requirements for claiming them, and the methods for calculating your deductions based on the latest information from the Australian Taxation Office (ATO).

This is a general summary only. For more information, go to ato.gov.au/home or speak to a registered tax professional.

Eligibility:

Before we explore the specific deductions available, it’s essential to understand the eligibility criteria set by the ATO. To claim working from home tax deductions, you must be working from home to fulfil your employment duties and meet the following requirements:

1. Personal Expense: You must have spent the money yourself and not been reimbursed by your employer. If your employer has already covered the cost of an item or service, you cannot claim it as a deduction.
2. Direct Relation to Income: The expense must be directly related to earning your income. This means that the item or service you’re claiming must be necessary for you to perform your work duties effectively.
3. Record-Keeping: You must have a record to prove the expense, such as a receipt or invoice. It’s crucial to maintain accurate records of your expenses throughout the year to substantiate your claims.

Types of expenses you can claim:

1. Home Office Equipment: One of the most common expenses associated with working from home is the cost of home office equipment. This includes items such as computers, printers, scanners, and office furniture. If you purchase equipment that costs less than $300, you can claim an immediate deduction for the full cost in the year of purchase. However, for items that cost more than $300, you’ll need to claim a deduction for the decline in value over the effective life of the asset. It’s important to note that if you use the equipment for both work and personal purposes, you can only claim a deduction for the work-related portion. For example, if you purchase a laptop for $1,200 and use it 60% of the time for work, you can claim 60% of the decline in value as a tax deduction.
2. Running Expenses: When working from home, you’ll likely incur additional running expenses such as electricity, gas, cleaning costs, and the decline in value of home office furniture. These expenses are deductible, but you can only claim the portion that relates to your work use. To calculate your deduction, you’ll need to determine a reasonable basis for apportioning the costs between work and personal use. This can be done by keeping a diary of your work hours and the number of hours you use each space for work purposes. Alternatively, you can use a revised fixed rate of 67 cents per hour (discussed later in this article) to simplify the calculation process.
3. Phone and Internet Expenses: If you use your personal phone and internet for work purposes, you can claim a deduction for the work-related portion of these expenses. To determine the work-related percentage, you can either keep a diary of your work-related phone and internet usage or use a reasonable estimate based on your itemised bills. For example, if your monthly phone and internet bill is $100 and you estimate that 30% of your usage is work-related, you can claim a deduction of $30 per month.
4. Occupancy Expenses: In some cases, you may be able to claim occupancy expenses such as rent, mortgage interest, council rates, and home insurance. However, the criteria for claiming these expenses are more stringent compared to other working from home deductions.To claim occupancy expenses, you must have a dedicated home office space that is used exclusively for work purposes. This means that the space cannot be used for any other purpose, such as a guest room or a shared living area. Additionally, you must be able to demonstrate that you have an area of your home set aside primarily for work. If you meet these criteria, you can claim a portion of your occupancy expenses based on the percentage of your home’s floor area that is used for work purposes. For example, if your dedicated home office space occupies 10% of your home’s total floor area, you can claim 10% of your occupancy expenses as a tax deduction. It’s worth noting that claiming occupancy expenses can have capital gains tax implications when you sell your home. If you claim occupancy expenses, you may be required to pay capital gains tax on the portion of any profit that relates to the home office space. Therefore, it’s essential to weigh the potential benefits of claiming occupancy expenses against the long-term tax consequences.

Calculation methods for WHF tax deductions:

The ATO provides two methods for calculating your working from home tax deductions. Each method has its own set of requirements and record keeping obligations, so it’s essential to choose the one that best suits your circumstances.