Coronavirus: How to maximise tax deductions while you’ve been working from home
Bigger tax refunds are just weeks away for millions of Australians who have been working remotely during the coronavirus pandemic. Here’s what you can claim and what you can’t.
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Bigger tax refunds are just weeks away for millions of people who have been working from home during the coronavirus pandemic.
More than two in five Australians have worked at home since March – some for the first time – and many can claim hundreds of extra dollars of deductions this year.
The Australian Taxation Office recently introduced a special COVID-19 shortcut method for working from home tax deductions.
It allows a deduction of 80c an hour for each hour worked at home between March 1 and June 30 to cover all costs incurred.
ATO assistant commissioner Karen Foat said using this shortcut, people working full-time from home between March 1 and June 30 would be entitled to a deduction of more than $500.
“According to the Australian Bureau of Statistics, over 40 per cent of people are working from home in some form or another, she said.
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The 80c per hour deduction applies per person, not per household, so a family with three adults working from home could potentially claim almost $100 a week for the four-month COVID period.
However, accountants say the ATO’s other two methods of claiming work-related tax deductions may deliver bigger refunds for many people.
Workers can choose the actual cost method – where all expenses require detailed records – or the fixed rate method of 52c per hour worked that covers energy, repairs and some depreciation but allows workers to separately claim phone, internet, and some other expenses.
HLB Mann Judd tax partner Peter Bembrick said people might have experienced sharp rises in energy bills, or bought printers, office furniture, stationery or equipment such as headsets and cameras.
“People may find they can claim more through actual costs rather than using the ATO’s shortcut method,” he said.
“When they provide you with an easy option, a lot of people are just going to take it. They feel at least they are getting something.”
Xero head of industry Matthew Prouse said people who worked from home before COVID-19 struck would still need to keep records for the first eight months of 2019-20. The ATO accepts a diary over a four-week period to show usual working at home patterns.
“It is expected that other work-related expenses such as travel and clothing expenses will decrease this year as more employees work from home,” Mr Prouse said.
He said people could not claim for expenses that had been reimbursed by their employer.
Ms Foat said workers were free to use the non-shortcut methods “as long as they have the records to support it”.
“We are trying to make it quite easy for people to claim what they are entitled to, but we also don’t want people to be claiming what they’re not entitled to,” she said.
“We have sophisticated data matching analysis to spot where returns are not quite right and where we think people’s claims are really high for their occupation and income level.”
FAST TO PIVOT
Like many in the health and fitness industries, Chelsey Cameron showed quick reflexes when COVID-19 shut down her workplace.
The head of pilates at BodyMindLife was overseeing a staff of 50 while also working as an instructor herself when both roles shifted to her home during isolation.
“We set up an online business … bodymindlife.com … and we created an app,” she said.
“I did all of my classes online.”
This meant she had to spend money on things such as professional lighting, a tripod, extra internet and more heating. “It’s winter and freezing and we are in crop tops and leggings,” Ms Cameron said.
Those extra expenses have put her on track for bigger tax deductions this year along with millions of other Australians who have been working from home.
Ms Cameron said she was working up to 80 hours a week during lockdown: “it was one of the busiest times of my life”.
She works as both an employee and sole trader, and was unaware of the Australian Taxation Office’s 80c per hour shortcut method for tax deductions, but will speak about it with her accountant.
“It’s not well-known and I think it needs to be a little more publicised,” she said.
TIPS TO MINIMISE DEDUCTIONS
1. Work out whether the new 80c per hour shortcut method is best for you. If you’ve spent a lot of money on work-related items in recent months, it may be more lucrative to record and claim your actual spending.
2. Remember that each person in a household can claim 80c per hour worked at home from March 1 to June 30.
3. Telecommunications expenses often deliver big deductions – phone and internet plans can cost $100 per month, but only claim the work-related portion.
4. All work-related items costing less than $300 can be deducted immediately in the year they are purchased, so consider spending before June 30 if you need anything.
5. More expensive items such as furniture, computers and phones can still become tax deductions, with their decline in value split over several years.
6. If unsure, seek advice from a tax agent or accountant – their fees are tax-deductible.
7. Can’t find your receipts? Head online and check your bank account and credit card statements for a record of your spending.
8. Subscriptions to newspapers, professional journals and digital materials can also be deductible when they relate to your work.
9. Business owners including sole traders have much more flexibility and can claim full tax deductions for items each costing up to $150,000 under the government’s COVID-19 instant asset write-off scheme.
10. Business owners can also claim a portion of rent costs or mortgage interest if their home is their place of business, but be aware of potential capital gains tax issues.
WHAT WORKERS CAN’T CLAIM
• Home to work travel, even if you’re still spending most of the week at your home office.
• The full amount of work-related items costing more than $300 upfront – their cost must be depreciated over several years.
• A portion of rent or mortgage payments. This is only available to business owners when their home is also their business premises.
• Entire household bills – only the work-related portion is deductible.
• Costs related to children’s schooling at home during the lockdown. These are private expenses.