COVID-19 and your tax return

Covid-19 tax tips

Have you worked from home at some point during the past year? You may have some unexpected tax deductions coming your way.

According to research, 4.3 million Australians have set up home offices during the COVID-19 pandemic. That’s roughly 30% of the working population.

Whether it’s a kitchen benchtop, or a dedicated space, working from home comes with its own unique expenses. This has been acknowledged by the Australia Taxation Office (ATO), which has updated its rules, and made it easier for people to claim tax deductions for their home office arrangements.

With tax time around the corner, here’s what you need to know about deductions, and what that could mean for your hip pocket.

Things you can claim

Let’s start with the basics. What can you claim if you’re working from home? The following list captures the main expenses:

  • Electricity bills associated with heating, cooling and lighting bills,
  • Depreciation of home office equipment and computers,
  • Depreciation of home office furniture,
  • General office supplies (printer ink, stationary etc.),
  • Phone (mobile and/or landline) and internet expenses,
  • Costs of cleaning your home working area.

Note that small capital items, such as office furniture and computer equipment costing less than $300, can be claimed in full for that year.

Things you can’t claim

Here’s the bad news. You can’t claim biscuits, coffee or other office staples as a tax deduction.

More significantly, the cost of home schooling your kids isn’t covered. Which means buying them an iPad, setting up an appropriate working space for them, or any associated costs aren’t eligible.

You also can’t claim for general occupancy items. In other words, rent, interest on your mortgage and council rates are not covered.

How to calculate tax deductions

There are three options when it comes to COVID-19 working from home deductions.

Shortcut method:

As the name suggest. This is the easiest way to calculate your expenses. It’s based on a flat 80 cents per hour worked from home. If you opt for this method, you can’t claim any other individual working from home expenses.

The shortcut method covers any period from 30 March 2020 until 30 June 2021.

Note that you’ll need to have some record of the hours worked. The ATO suggests timesheets, a roster, a diary or other documents that set out the hours you worked from home.

Fixed rate method:

The fixed rate method is basically a hybrid approach.

It allows you to claim a fixed 52 cents per work hour while also claiming for additional specific costs. That means you can put in separate claims for things like phone expenses, internet expenses, office products and a decline in the value of equipment, e.g., laptops.

Like any other tax deductions, you’ll need to keep records of your costs and hours worked, etc.

Actual cost method

If you have significant running expenses while working from home, you may prefer to take a real dollar cost approach to your tax deductions. In other words, you’ll claim for specific costs, rather than a flat hourly expense.

These expenses will be the same as those we outlined earlier, e.g., depreciation of home office furniture, stationary, etc.

A gradual return to normal

While many organisations are encouraging their employees to come back to the office, it’s likely that there’s still a long way to go before we’re all back at our desk. For many people, 2021 will see a gradual return to work, with 2-3 days in the office and the rest at home.

If that sounds familiar, just remember you have additional tax deductions you may be eligible for. You can find out more via the government’s website or by speaking to your accountant.

Meanwhile, a financial planner can help you better understand your options and recommend the best way to structure your finances. Our members can speak to one of our financial planners at no additional charge for the initial appointment. 

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Any figures quoted are correct at the time of writing but may be subject to change.

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