If you’ve been forced to work from home as a result of coronavirus, working out your running costs for tax can be a headache.
Coronavirus restrictions have ushered though the biggest and most rapid working change for white collar employees since World War Two.
Offices were replaced with dining room tables, meetings with video conferences and in-house software programs were hastily adjusted for remote access.
Thousands of Australians have now been working from home for months, leading many to question how the costs of running a quasi-office in their living room will affect tax returns.
Here's all of your questions about and the tax implications of working from home:
READ MORE: The top five mistakes people make on their tax returns
I've never worked from home before, and my tax return is super basic every year. Will claiming home office costs become a nightmare of receipts and logbooks?
No it won't.
The Australian Tax Office has said it recognises that the shift to working from home has caught a lot of taxpayers off guard. To help, the ATO has introduced a one-off "shortcut method" for calculating your running costs for working from home.
For every hour you've worked from March 1 to June 30 this year, you can claim a deduction for running costs of 80 cents per hour.
That includes electricity for lighting, gas heating, cleaning expenses, phone costs, internet costs and the decline in value of a computer or laptop.
That sounds fairly straightforward. How do you calculate it?
To start, you'll need to work out which date you started working from home, or the dates which you worked from home if you periodically went into the office.
If you work standardised shifts, all you need to do is multiply the number of days you've worked by the hours. If not, you'll need to be able to show the exact hours you've worked from home.
From there it's simply a case of taking the number of hours you've worked at home and multiplying it by 80 cents.
Using myself as an example: I started working from home on March 16. Between that date and today (June 10), I've worked 65 shifts of approximately eight hours each.
That's a total of 520 hours x 0.80 cents = $416 I can claim as a deduction.
That's great! But I think I've paid more in running costs … is there anyway I can maximise my return?
The ATO's shortcut method is a massive timesaver and can't account for everybody's personal situation. It's reasonable to assume that the 80 cents per hour figure might be conservative.
Don't fear – there's actually two more ways you can calculate your running costs: the fixed rate method and the actual cost method.
Sounds interesting. How does the fixed rate method work?
The fixed-rate method allows you to claim a deduction of 52 cents per hour flat for each hour you work from home.
Unlike the 80 cent shortcut method, the fixed rate method only covers expenses for electricity and gas, cost of repairs and the decline in value of home office furniture like a desk.
Using my earlier calculated hours of 520 x 0.52 = $270.40 I can claim under the fixed rate method.
To use the fixed rate method, you must keep records of your actual hours spent working at home, or a diary for a four-week period to show your usual pattern of working at home.
You'll also need to prove that you have a "dedicated work area" such as a home office.
Right … that's so much less money than the shortcut method. Why would you use it?
The fixed rate method of 52 cents does not incorporate your phone expenses, internet expenses, computer consumables and the decline in value of equipment.
Using myself as an example, I bought a $1200 laptop to be able to work from home as I only had a desktop at work.
Under current rules, you can only claim home office equipment as a full deduction if it's value is $300 or less. Obviously my new laptop is a lot more than that.
For items over $300, what you can claim is depreciation using the ATO's Depreciation and Capital Allowances tool.
I used this tool for my $1200 laptop and discovered that due to depreciation it would be worth approximately $848.22 at the end of the year.
As a result, the deductible decline in value I can claim is $351.78. If I add that on top of my fixed rate 52 cent deduction, I'm ahead compared to the shortcut method.
Obviously people need all kinds of different equipment to do their job from home, but remember you can only claim the work-related portion of use.
Since I use that laptop solely to work, I can claim its entire use as a deduction.
I'm just hanging in here. What then is the actual cost method?
Good job. Most people will find working out their deductions to be headache-inducing the first year, and then more manageable as you become accustomed to keeping records.
So, onto the actual cost method – this one is for the real number crunchers.
The actual cost method is for claiming the work-related portion of your running costs for working from home. For this you'll need a dedicated work area that is not shared by other members of the household and you'll need impeccable records.
Under the actual cost method, you can claim portions of electricity and gas bills, portions of phone expenses, portions of internet expenses, computer consumables such as printer ink, the decline in value of home office furniture and the decline in value of phones, computers and other devices.
You'll need receipts, itemised phone bills (showing work and personal calls) and even the cost per unit of power used (it's on your utility bill).
If you haven't used this method before, your records for earlier in the year are likely not that concise. The simplest way going forward is to use the ATO's app next financial year where you can take photos of receipts and bills in real-time.
Look, this is just all too hard. What hope do I have?
Don't give up hope! Although it may seem like it, the tax system is not based on how crafty or knowledgeable you can be – it's about claiming what is owed to you and paying the correct amount of tax.
Thankfully there are professionals that do this for a living. It's estimated that over 74 per cent of tax returns are done through a licensed tax agent.
Tax agents charge a fee to do you tax. Some offer flat rates and others charge a percentage of your return, but most will charge you based on the complexity and hours it takes to do your return.
You'll have to pay your tax agent upfront, but the good news is that you can claim their fee as a deduction in the next financial year.
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The information provided on this website is general in nature only and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information on this website you should consider the appropriateness of the information having regard to your objectives, financial situation and needs.
Source: 9News https://www.9news.com.au/national/tax-return-explainer-how-to-calculate-working-from-home-costs-covid19/a217eac3-f160-4572-8686-52811a1e1a84