For most of us it has been a new experience to work for extended periods from home due to COVID-19.
If you haven’t already, it is timely to start thinking about your tax return, and what expenses you can claim.
Three deduction formulas
This year, there are three different ways to calculate your deductions, and it is important you choose the right one.
1. The shortcut method
Using the shortcut method you can claim a tax deduction of 80 cents per hour worked from home between March 1 and June 30 2020.
That 80 cents covers running expenses (like electricity and gas), phone and internet expenses and everything else.
The shortcut method is especially useful for people who are working from shared spaces in their home, like the living/dining room or kitchen table.
The shortcut method can only be used for hours worked from home from March 1, 2020. If you were working from home before that date, you will need to use one of the other methods to claim for your hours before then.
If you have large phone or internet expenses, or if you have spent money to purchase new equipment or furniture, you might be eligible for a larger deduction using one of the other methods.
2. Fixed rate method
The fixed rate method involves claiming a flat deduction of 52 cents per hour worked from home to cover electricity and gas, decline in value of furniture and furnishings and any repairs.
To use the fixed rate method, you will need to have used a dedicated work area. It could be a home office, a converted bedroom or shed: the key is that you only use it for work.
On top of the 52 cents per hour flat rate, you can claim the following expenses separately:
- Phone and internet expenses related to your work (need to split work/private use)
- Decline in value of equipment, such as phones, computers and laptops (but not furniture)
- Stationery and computer consumables, like paper and ink cartridges.
If you don't have this space in your home, you're stuck with the shortcut method.
Also, if you have high running costs for your home workspace — or if you have spent money on new work furniture, like a desk or chair for your home office — you may end up with a better result using the actual cost method.
3. The actual cost method
The third option is to claim the actual expenses you directly incur from working from home.
This method takes the most time but it’s worth assessing whether you will achieve a higher deduction.
Essentially, you’d need to go back to your receipts and bills and work out the business portion of expenditure. It takes the most time and can be quite involved.
If you run your business from home
If you run your business from home, the rules are slightly different, and you may be able to claim a portion of your rent or mortgage payments.
Need more information?
Call one of our accounting advisors to get specific advice and guidance.