ATO working from home claims can create a a costly dilemma

Grow your tax refund by planting the seeds for larger deductions now, so you’re not needlessly giving money to the ATO.

Another year of working at home has put millions of Australians in line for bigger tax deductions, but many are missing out on money by taking the simplest path.

Tax specialists say March is a great time to get moving on tax, and there’s a growing range of apps and other technologies that make it easier.

H&R Block director of tax communications Mark Chapman says the latest Australian Taxation Office data shows four million people claimed working from home tax deductions last year, and about 20 per cent of them used the 80c per hour temporary “shortcut” method introduced for Covid.

“Many of those people will probably have done themselves a disservice,” Chapman says.

The shortcut method is a flat rate 80c deduction for all hours worked at home, and the ATO says you must have a record of those hours through a diary, timesheet or roster.

People can instead choose the fixed rate method, which is a 52c hourly rate to cover home office running costs such as airconditioning, lighting and furniture depreciation. But it also allows you to separately claim phone and data expenses, ink and stationery, and depreciation of electronic items such as laptops and phones.

BEST METHOD

Chapman says when H&R Block works with clients “about 95 per cent of the calculations show the 52c rate produces a better outcome”.

Kate Bruce, a senior accountant at dmca advisory, agrees that the fixed rate method usually provides the biggest deductions.

Kate Bruce from dmca advisory says keep an eye out for Covid testing deductions.

Bruce says if you haven’t been planning already, March is a great time to start collecting records and considering further tax deductions, such as superannuation contributions.

“There are many different apps these days that can make that faster and easier than the traditional shoe box,” she says.

Bruce suggests the Expensify program for businesses and individuals. The ATO has a free MyDeductions tool through its ATO app that helps users record spending and include photos of receipts and invoices.

“Keep an eye out for deductions that relate to Covid-19 testing, as the government recently announced they are planning to make the cost of testing deductible when required for work purposes,” Bruce says.

“Ensure that you are aware of deductions that can be claimed specific to your industry.”

The ATO has 40 different occupation and industry specific guides, from factory workers and firefighters to apprentices, agriculture and adult industry workers. Check if your job is covered and read it well before the end of financial year.

OLD SCHOOL WORKS TOO

Alan Chan, 31, is a digital content creator who runs Plant Jungle Instagram page with 72,000 followers and says he usually starts tax planning around March.

“The earlier you think about it, the better you are prepared when it comes to tax time,” Chan says.

He says he probably should use an app to track receipts but is “a bit old school” and keeps an Excel spreadsheet to track tax-deductible expenses.

“To prevent myself from losing physical receipts I try to take a photo of it straight away and store the receipts in a folder on my phone,” Chan says.

Alan Chan says he usually starts planning for tax time in March.

Many retailers now send receipts direct to your mobile or email address.

H&R Block’s Chapman says some modern apps allow people to flag expenditure on bank statements that may be tax deductible.

“It always pays to start early, particularly if you are planning on claiming motor vehicle expenses using a logbook – that needs to be kept for 12 weeks,” he said.

Other claims such as mobile phone use also need a four-week diary, Chapman says.

“Don’t leave everything to the last minute.”

WORKING FROM HOME TAX DEDUCTIONS

The ATO offers three ways to claim:

• Actual cost method: The actual expenses you incur as a result of working from home.

• Fixed rate method: Claim 52c per work hour for running expenses such as heating and lighting, then separately claim other expenses including phone and computer costs.

• Shortcut method: An all-inclusive rate per work hour of 80c, available from March 2020 to 30 June 2022.

Originally published as ATO working from home claims can create a a costly dilemma