The past few years have been unprecedented for many people and businesses alike. With entire countries in lockdown, many employees had to quickly adapt to a new working arrangement: working from home.
According to the Australian Bureau of Statistics, over 40% of employed people were regularly working from home during the last quarter of 2021. This number is steadily increasing as more work environments switch to hybrid models with remote and on-site elements.
And yet, many people still do not realise they can claim a range of tax deductions when working from home.
These deductions can help you cover some additional expenses associated with your new workplace setup, so it’s worth taking the time to understand what is on the list.
Here are nine working-from-home deductions you should be claiming to maximise your tax return.
Understanding the Difference Between Claiming Occupancy Expenses and Additional Running Expenses
According to the Australian Tax Office (ATO), you can claim tax deductions for expenses related to working from home if your home is your place of work or business and you have an area set aside exclusively for work activities.
Occupancy expenses refer to the costs of using your home, such as:
- Rent
- Mortgage interest
- Rates and taxes (including land taxes)
- House insurance premiums
Running expenses are the ongoing costs of running and maintaining your home, such as:
- Electricity and gas used for heating, cooling and lighting
- Cleaning
- Office equipment (printers, telephones and computers)
- The cost of work-related phone calls
- The cost of repairs for office fittings and furniture
How you claim these deductions will depend on how you use your home office. For example, if your home isn’t your primary place of work, but you do some work at home occasionally, you can’t claim occupancy expenses, even if you have a designated work area.
However, you may still be able to claim running expenses if they are directly related to your work activities.
The table below gives a breakdown of what you can claim based on your home office set-up:
Expenses you can claim | You have a designated work area in your home, which is your place of business or work | You have a designated work area in your home, but it’s not your place of business or work | You don’t have a designated work area, but you work from home occasionally |
Occupancy expenses | Yes | No | No |
Running expenses | Yes | Yes | Yes |
Office equipment depreciation (e.g. computer, desk and chair) | Yes | Yes | Yes |
Depreciation of household plant and equipment (e.g. curtains, wood floors and light fittings) | Yes | Yes | No |
So, in essence, if you’re an employee working from home and your home isn’t a place of business, your tax deductions are typically limited to running expenses, such as electricity or internet bills. On the other hand, if you use your home as a place of business and conduct most of your work there, you may also be able to claim occupancy expenses.
How Do You Calculate Your Tax Deductions?
Under this method, you can claim a fixed rate of 80 cents per hour for each hour you work from home. This rate is intended to cover the costs of expenses such as:
- The depreciation of office furniture, such as your desk
- Electricity and gas
- The cost of repairing home office equipment, furniture, and furnishings.
You can’t, however, claim the following expenses under the fixed rate method, but you can submit a separate claim for the work-related portion of the expense:
- Phone, data and internet expenses;
- Computer consumables and stationery
- Depreciation of assets other than home office furniture such as computers and printers
How Does the Actual Cost Method Work?
As the name suggests, the actual cost method allows you to claim a deduction for the actual home expenses you incur from having an office. For example, if you pay $150 a week to clean your house and your home office makes up 15% of the space, you can claim a working-from-home tax deduction for $22.50, which is the actual expense you incur for having a cleaner tidy up your office.
Example: Actual Cost vs Fixed Rate Method
Connor is an employee of an IT company that has adopted a hybrid working model, meaning he works remotely most of the time. As such, Connor is eligible to claim tax deductions for the running home office expenses he now incurs.
According to the records he has kept, Connor has the following expenses:
Expense | Deduction (Actual Cost Method) | |
Depreciation of the standing desk | Value of $329.50 over 20 years | $16.48 |
Depreciation of the chair | Value of $175 over one year | $175 |
Electricity for the iMac | 1 cent per hour for 24 hours per week for 48 weeks | $11.52 |
Electricity for lighting | 0.8 cents per hour for 24 hours per week for 48 weeks | $9.22 |
Electricity for heating and cooling | 9 cents per hour for 24 hours per week for 48 weeks | $103.68 |
Total deductible amount | $315.90 | |
Using the fixed rate method, Connor would simply have to multiply 52 cents by 24 hours per week for 48 weeks:
(52 cents x 24 hours per week) x 48 weeks = $599.04
So, in this case, the fixed rate method gives the greater deduction for Connor’s home office running expenses. .
But remember, each person’s circumstances are different, and you should consult a business account or tax advisor to help you establish which calculation method will maximise your working-from-home tax deductions and reduce your taxable income.
How KNS Accountants Can Help You Maximise Your Tax Deductions
Here at KNS Accountants, we can help you make the most of your working-from-home tax deductions, providing you with expert advice on how to maximise your tax efficiency. Our highly trained professionals have extensive experience helping clients in their respective fields and are familiar with the various tax laws applicable to individuals and businesses across Australia.
We can assist you in understanding the rules around claiming expenses for items you use for work purposes, calculate the correct amounts for eligible deductions, provide guidance on keeping records of income and expenditure, and even provide tips on how to save more money when submitting returns.
Contact us today to find out more.
Key Takeaways
If you’re a home-based worker, now may be the perfect time to start taking advantage of the tax deductions available.
There is an array of expenses that could qualify, such as office equipment, phone bills, and electricity costs tied to your work. However, remember that you can only claim the business portion of these expenses. And to ensure accurate deductions from tax year to year, remember to organise all your records, including receipts and forms pertaining to the claims.
If you want more information about working-from-home tax deductions and other tax-related issues, get in touch with an accountant at KNS today.
