In the era of working from home (WFH), it is more important than ever to understand how to claim work-related expenses. With more people than ever before working remotely, the Australian Taxation Office (ATO) has simplified the process for claiming deductions for expenses incurred while working from home.
During the pandemic, many companies around the world have experimented with remote working with surprising success. They found that they could maintain productivity, while their employees enjoyed the flexibility and convenience of working from home. Australians, in particular, are experiencing the benefits of WFH, including the savings on time and commuting costs.
If you are one of the millions of people in Australia working from home, there are several expenses you can claim when it comes to tax time. However, it is essential to understand which expenses are tax-deductible and the method for calculating them. Here is everything you need to know about claiming work-related expenses for WFH.
What is a Work-Related Expense?
In simple terms, a work-related expense is anything you’ve paid for yourself for the purposes of earning income. The cost must be associated with your job, and you need to have a record of the payment. Examples of common work-related expenses include:
- Vehicle expenses
- Clothing, laundry, and dry-cleaning expenses
- Travel expenses
- Self-education and training expenses
- Tools, equipment, and other assets
Home office expenses
The last item on the list is the one that is most relevant to people who work from home. Home office expenses are any cost you incur that is associated with running a home office. The expenses can be broken down into two categories: running expenses and occupancy expenses. Both expenses can be claimed, but the methods for calculating them are different.
Running Expenses
Running expenses are the day-to-day costs of running a home office, such as electricity, gas, lighting, and cleaning. These expenses can be claimed using two methods:
a) Actual Cost Method: This method requires you to keep records of all your expenses over the financial year. You don’t need to check which portion of the bill is attributable to your home office, as long as you can show that the expenses were incurred in running your business. At the end of the financial year, you can calculate the proportion of these expenses that relate to your home office and use that amount as a deduction.
b) Simplified Method: The simplified method is where the ATO allows you to claim a flat rate of 52 cents per hour for each hour you spend working from home. This method covers most of your running expenses, including lighting, heating, cooling, and cleaning. If you choose this method, you do not need to keep records of actual expenses incurred.
Occupancy Expenses
Occupancy expenses are expenses related to the premises you work from, such as rent, mortgage interest, insurance, and rates. These expenses can be claimed through the actual cost method only. To calculate how much to claim, you need to work out the proportion of your home used for business purposes.
For instance, if your home office is 10% of the total floor area of your home, you can claim 10% of the occupancy expenses, such as rent or mortgage interest. You can also claim a proportion of the running expenses (heating, cooling, lighting, cleaning) based on this percentage.
When Can You Claim Home Office Expenses?
To make a claim for home office expenses, you must meet the following conditions:
You must have a permanent home office, used exclusively for work purposes
Your employer requires you to work from home
You must have incurred the expense yourself and not been reimbursed by your employer
If you meet these conditions, you can claim home office expenses as a tax deduction.
Conclusion
In conclusion, if you’re working from home, understanding which expenses you can claim can make a significant difference to your finances. In particular, you should keep track of the expenses associated with your home office, including running and occupancy expenses.
It’s essential to make sure you are not over-claiming, and document all relevant expenses accurately so you can claim them as a tax deduction. You should determine whether you should use the simplified or actual cost method, depending on how much paperwork you wish to do, and how much time you spend working from home.
The ATO provides detailed guidance on how to claim home office expenses, but if you’re unsure, seek advice from a tax professional. Claiming work-related expenses can help put more money back into your pocket, so it’s worth getting it right.