If you’re an employee working from home, the ATO is now offering a simplified working from home allowance. They’re also still permitting you to claim under the old methods. But which is better for you?

Millions of employees around the world are shifting to working from home arrangements because of COVID-19. If you’re reading this blog, you’re most likely one of them. While this is good from a safety perspective, it does make some things a little (or a lot!) more difficult. But the ATO doesn’t want your tax returns to be one of them.

Work-Related Expenses are Tax-Deductible

The ATO has always encouraged employees who spend some time working from home to claim certain work-related expenses as a tax deduction. These expenses can include electricity, cleaning costs, phone and internet, computer consumables (that means printer paper and printer ink, for example), home office equipment, home office furnishings and the costs of repairs to work equipment or spaces.

There are some limitations of course.

• First, each of these items must be directly related to your work. So, for example, your electricity expenses would be limited to the heating, cooling and lighting of the area of your home where you actually work.
• Second, you must have actually spent the money (if you ordered a printer, but haven’t paid for it yet, you can’t claim it until you do).
• Third, you must have a record.

This third prong is where things can get tricky. Tracking all these expenses can be challenging at the best of times. And with many workers working from home for the first time, and others trying to balance both working from home and childcare, it can be a nearly impossible situation.

Three Methods to Claim Your Working From Home Allowance

Because of the current challenges, the ATO is now offering three different methods to determine your working from home allowance.

Actual Costs Method

The actual costs method is where you claim the actual work-related portion of all your running expenses calculated on a ‘reasonable’ basis. If you have a dedicated work space – such as an office or even a desk area that isn’t otherwise utilised for regular household use -you can claim your actual running costs and the decline in the value of your office furniture as well.

To use this method you must keep a record of the number of actual hours you work from home. You also need to keep a diary over a four-week period that proves your pattern of work. You will need to keep receipts of any depreciating assets and of any cleaning expenses, utility bills and the like so that you (or your accountant) can work out how much should be apportioned to your expenses.

While this is the most accurate way of determining your running costs, it is also the most time consuming and document heavy.

Fixed Rate Method

Instead of keeping so many onerous records, you could opt to use the fixed rate method. The fixed rate method entitles you to claim 52 cents for each hour that you work from home. This is based on the average energy costs and value of home office furniture items rather than on your specific costs.

To claim this you do have to either keep a record of your actual hours spent working OR keep a representative four-week diary to show your work patterns.

Shortcut Method

Finally, the ATO has introduced a new shortcut method for calculating your working from home expenses. This method is designed to help employees who are working from home for the first time due to COVID-19.

Under the shortcut method you can claim a deduction of 80 cents for each hour that you work from home as long as you are doing your normal duties (and not just ‘taking calls’ or otherwise doing minimal work) and as long as you’re incurring additional expenses.

The shortcut method covers all your additional running expenses that you might otherwise include. Things like your computer or electrical use, or phone and internet charges are all part of the 80 cents. It’s important to note that you don’t need to have incurred all the possible expenses. As long as you have incurred some then you are entitled to take the full 80 cents per hour. You do have to keep track of your working hours, but timesheets and even diary notes are sufficient proof.

A big pro of the shortcut method is that you can take advantage of the working from home allowance without being bogged down by tracking expenses or apportioning work and personal use. But there’s a con – it’s currently only available for the time period of 1 March 2020 to 30 June 2020.

Which is the best method for you?

It’s impossible to say which methodology will give you the best monetary tax benefits without looking into your specific situation. We can say that as a general rule, taxpayers are better off claiming actual costs than using flat rate allowances. However, if you are looking for more simplicity and less record keeping, or simply don’t have the time or inclination to keep track of the necessary documentation, then perhaps the 52 cents option or even the new shortcut method are the better options for you.

We’re happy to give you personalised advice on which working from home allowance is the right one for you? Get in touch for your free one hour initial consultation call.