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31 October 2018

Employees working from home

Employees working from home

With changes in technology and the way businesses are run, including an increase in flexible working conditions, more employees are working from home than ever before. The ATO has seen a corresponding rise in the deductions individuals are claiming on their tax returns in regards to home office costs.

As a result of this the ATO is increasing its focus on home office expense claims this year.

While employees can claim costs incurred as a result of working from home on their annual returns, private expenses related to the home are not deductible.

It can often be confusing for individuals to understand the difference between what they can and cannot claim in this area.

Some costs that can be claimed in relation to working from home are:

  • Work-related portion of internet costs
  • Work-related portion of home phone costs
  • Computer software or equipment purchases
  • Printing and stationery

In many cases the costs might be related to both personal and work-related use, such as internet and home phone expenses, in which case, only the work-related portion of the expense should be deducted.

A portion of the home running costs, such as electricity and gas, can only be claimed if the employee has a dedicated work or office area in the home. If working from home means sitting at the kitchen bench or dining table, it becomes harder to prove that you’re incurring any additional running costs by working from home.

Occupancy costs are similarly limited. Employees cannot generally claim a portion of their rent or mortgage repayments, council or land rates, etc, on their tax returns.

There are two methods available to claim your home running costs, either by a fixed rate (set by the ATO) per hour worked at home or by calculating the portion of your actual expenses related to your work.

To calculate the portion of your actual costs that you can claim, work out the rough floor area of the part of your home that you use for work as a percentage of the total home and apply this percentage to your total expense. This would then need to be further apportioned so you only claim for the time you spent actually working at home.

For example:

You incurred electricity costs of $2,000 over the whole year. If you calculated that your home office area was 15% of your total home and you worked from home 40% of the year, the total you could claim for your electricity would be $120.

If your employer has reimbursed you for any of the costs associated with working from home then those expenses cannot be claimed on your return.

Generally, the same rules for normal deductions also apply to home office costs – you must have spent the money yourself and not been reimbursed for the cost; the cost must be directly related to earning your income; and you need an appropriate record to be able to prove the expense. Supporting records can include receipts, itemised bills, diary entries and bank statements.

The ATO has a fact sheet available for employees who work from home here, including an explanation of what is deductible, how to calculate the work-related portion of those costs and what sorts of records should be kept.

If you are running your business from home, there may be more opportunity for greater claims than employees that work from home. Contact us for further details.

 

Liability limited by a scheme approved under Professional Standards Legislation. Liability is limited in those States where a current scheme applies.   

 

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