The ATO issues specific guidance addressing common questions
Many of our clients have questions about claiming expenses when forced to work from home over the COVID-19 period.
The accounting profession has also reported other clients coming to them with concerns about any consequent capital gains issues when later selling a property from which they had been coerced to work from during this time.
First of all, the CGT issue is fairly straight forward. The ATO says that in most cases, if someone is working from home as an employee, regardless of whether or not they have a separate work area, there will be no CGT implications for the home. This is the case even if they claim home office expenses, and of course using the new COVID-19 shortcut method (more below) should wipe out any doubt.
However CGT may apply if they are running a business from home, or they claim occupancy expenses. If you do, or have, claimed occupancy expenses, you will generally not get the full main residence CGT exemption.
Claiming COVID work-at-home deductions
The ATO says that to claim a deduction for working from home, all of the following must apply:
- you must have spent the money
- the expense must be directly related to earning income
- there must be a record of this that can be provided if asked.
Please understand that this means you should not claim a deduction for items provided by an employer, or if you have been reimbursed by an employer for expenses. If there has not been a reimbursement but you have instead received an allowance to cover expenses when working from home, you:
- must include this allowance as income in their tax return, and
- can claim a deduction (as outlined below).
Expenses that can be claimed
If you work from home, you will be able to claim a deduction for additional running expenses incurred, which may include:
- electricity expenses associated with heating, cooling and lighting the area from which you are working, and running assets used for work
- associated cleaning costs for a dedicated work area
- phone and internet expenses
- computer consumables (for example, printer paper and ink) and stationery
- home office equipment, including computers, printers, phones, furniture and furnishings. Of these, you can claim either the:
- full cost of items up to $300
- a decline in value for items over $300.
The ATO has stated that it accepts that tracking all of these expenses can be challenging for ordinary taxpayers, so has undertaken to accept a temporary simplified method (or “shortcut” method) of calculating additional running expenses for the period starting 1 March 2020 until at least 30 June 2020. More details are here. It says it may extend this method depending on when general work patterns may return to what has until now been accepted as “normal”.
Expenses not within the COVID-19 ambit
If you are only working from home because of the COVID-19 situation, generally:
- you cannot claim the cost of coffee, tea, milk and other general household items an employer may otherwise have provided while they were at the usual workplace
- you cannot claim occupancy expenses such as mortgage interest, rent and rates.
Calculating running expenses
There are at present three ways you can choose to calculate additional running expenses:
- fixed rate method ─ claiming all of these:
- a rate of 52 cents per work hour for heating, cooling, lighting, cleaning and the decline in value of office furniture,
- the work-related portion of actual costs of phone and internet expenses, computer consumables, stationery, and
- the work-related portion of the decline in value of a computer, laptop or similar device.
- actual cost method ─ claiming the actual work-related portion of all running expenses, which you need to calculate on a reasonable basis.
- shortcut method (details below).
The ATO has provided a summary of home office expense facts in poster form, which our clients can download here.
Working-from-home taxpayers can claim, from 1 March 2020 until at least 30 June 2020 (this may be extended), a deduction of 80 cents for each hour you work from home due to COVID-19 as long as you are:
- working from home to fulfil employment duties and not just carrying out minimal tasks such as occasionally checking emails or taking calls,
- incurring additional deductible running expenses as a result of working from home.
You do not have to have a separate or dedicated area of your home set aside for working, such as a private study.
The shortcut method rate is intended to cover deductible running expenses, including:
- electricity for lighting, cooling or heating and running electronic items used for work (for example a computer), and gas heating expenses
- the decline in value and repair of capital items, such as home office furnishings
- cleaning expenses
- phone costs (which includes decline in value of the handset)
- internet costs
- computer consumables, such as printer ink
- the decline in value of a computer, laptop or similar device.
If you opt to use the shortcut method to claim a deduction for additional running expenses, you cannot claim a further deduction for any of the expenses listed above.
Taxpayers are expected to keep a record of the number of hours they have worked from home as a result of COVID-19. Examples are timesheets, diary notes or rosters.