In recent months, remote work and work from home (WFH) arrangements have become increasingly popular due to the ongoing pandemic situation. However, even before the pandemic, many businesses were already practicing WFH arrangements for their employees. This allows employers to cut down on office expenses and provides employees with flexible working hours, helping them to maintain a better work-life balance. While WFH offers many benefits, it also means that employees may incur expenses related to their home office. However, in most cases, employees can claim these expenses as a tax deduction if they are working from home for the convenience of their employer.
In this blog post, we will discuss the types of work-related expenses that an employee can claim when working from home, the documentation required, and the process for making a claim.
Types of Work-Related Expenses You Can Claim When Working From Home
When working from home, there are two types of expenses that can be claimed: running expenses and occupancy expenses.
Running expenses are expenses incurred in the day-to-day operation of your home office. These include expenses such as electricity, gas, water, phone, and internet expenses. As an employee, you can claim a deduction for the portion of these expenses that relate to your work-related use, such as the portion of your internet or electricity bill that relates to your home office.
To calculate your claim for running expenses, you will need to keep records of your expenses, such as receipts or other evidence of expenditure, such as bank or credit card statements. You will also need to keep a record of the hours you worked from home, as well as the hours you worked at your employer’s premises. This will help you to calculate the percentage of your home that is used as your home office.
You can claim running expenses by using either the actual cost method or the ATO’s fixed rate method. Under the actual cost method, you will need to calculate the actual expenses related to your home office. Under the ATO’s fixed rate method, you can claim a deduction of 52 cents per hour for every hour you work from home, which covers expenses such as electricity, gas, and depreciation of furniture and equipment.
Occupancy expenses are expenses that relate to the ownership or rental of your home, such as mortgage interest, rent, property insurance, and rates. Unlike running expenses, claiming occupancy expenses is subject to additional criteria which need to be met. To claim these expenses, your home must be your principal place of employment or where you conduct the “income-producing activity”. This means that your home office must be the primary location from which you perform your work activities.
Even if you meet the criteria for claiming occupancy expenses, you can only claim a portion of these expenses that relate to your home office’s exclusive use. Again, you will need to keep accurate records of these expenses and the hours you spend working from home to calculate the portion of expenses you can claim as a deduction.
Documentation Required for Making a Claim
To claim work-related expenses, you need to provide the Australian Taxation Office (ATO) with evidence that you have incurred these expenses, including receipts or other evidence of expenditure, such as bank or credit card statements. This evidence should clearly show the date of purchase, the amount paid, and the purpose of the expense. The ATO may ask you to provide further evidence or documentation to support your claim, so it’s important to ensure you keep accurate and detailed records.
It’s also essential to keep records of the hours you work from home, as well as the hours you work at your employer’s premises. This will help you to determine the percentage of your home that is used as your home office and the percentage of expenses you can claim.
Process for Making a Claim
To claim work-related expenses when working from home, you will need to complete a tax return. If you are using a registered tax agent, they can assist you with this process.
When completing your tax return, you will need to include all work-related expenses, including those related to your home office. You will need to provide evidence of these expenses, as well as a calculation of the proportion of your home used as your home office.
Once you have submitted your tax return, the ATO will assess your claim and determine whether you are entitled to a deduction. If your claim is accepted, you will receive a refund for the amount of tax you have overpaid.
WFH arrangements are becoming more commonplace in today’s business world, especially due to the COVID-19 pandemic. However, working from home means that you may incur expenses related to your home office, such as electricity or internet expenses. As an employee, you can claim these expenses as a tax deduction if you have incurred them when working from home for the convenience of your employer. To claim tax deductions for home office expenses, you will need to keep detailed and accurate records of your expenses and hours worked. You can claim both running expenses and occupancy expenses, as long as the criteria are met, and you have the evidence to substantiate your claim.