On 7th April 2020, the ATO released a new working-from-home deduction shortcut for claiming home office expenses in response to changes in working arrangements resulting from Coronavirus. The ‘short-cut method’ applies to claiming home office running costs, at an increased rate of $0.80 per hour and can only be claimed for the period 1 March 2020 to 30 June 2020. 

Pre-1st March 2020, you may be able to claim a tax deduction for a portion of home expenses relating to working from home. These are generally:

• home office running expenses (e.g. lighting, heating and cooling)
• phone and internet expenses.
• the work-related proportion of the decline in value of office equipment.

Under the ‘fixed-rate’ method, these running expenses were calculated at the rate of $0.52 per hour, with phone and internet expenses and decline in value on computers needed to be calculated separately.

$0.80 cents per hour Method Covers All Running Costs

Under the new arrangement, you will be able to claim a rate of $0.80 per hour for all running expenses, rather than needing to calculate costs for specific running expenses.  However, if you choose to use this shortcut method, you will need to keep a record of the hours you worked from home as evidence of your claim, which can be in the form of time sheets or diary notes.  The requirement to have a dedicated work-from-home area will also be removed, with multiple people in each household allowed to claim the new rate.

The 80 cents per hour method is designed to cover all deductible running expenses associated with working from home, from 1 March 2020 to 30 June 2020, including the following:

• Electricity expenses associated with heating, cooling and lighting the area at home which is being used for work.
• Cleaning costs for a dedicated work area.
• Phone and internet expenses.
• Computer consumables (e.g., printer paper and ink) and stationery.
• Depreciation of home office furniture and furnishings (e.g., an office desk and a chair).
• Depreciation of home office equipment (e.g., a computer and a printer).

Furthermore, according to the ATO’s announcement, under the 80 cents per hour method:

(a) there is no requirement to have a separate or dedicated area at home set aside for working (e.g., a private study);

(b) multiple people living in the same house could claim under this method (e.g., a couple living together could each individually claim running expenses they have incurred while genuinely working from home, based on the 80 cents per hour method); and

(c) an individual will only be required to keep a record of the number of hours worked from home as a result of the Coronavirus, during the above period. This record can include time sheets, diary entries/notes or even rosters.

Working from home running expenses that are incurred before 1 March 2020 (and/or incurred from this date where an individual does not use the 80 cents per hour method) must be claimed using existing claim arrangements. Broadly, these existing claim arrangements require:

• an analysis of specific running expenses incurred as a result of working from home; and
• more onerous record-keeping (e.g. receipts and similar documents for expenses being claimed, as well as the requirement to maintain a time usage diary or similar record to show how often a home work area was used during the year for work purposes).

ATO Assistant Commissioner, Karen Foat said the new shortcut method would make tax time easier for those who were working from home for the first time in light of the ongoing coronavirus pandemic.

“The shortcut method provides a rate of $0.80 per hour and will only require you to keep a record of the number of hours worked from home,” Ms Foat said.

“This recognises that many taxpayers are working from home for the first time and makes claiming a deduction much easier.”

“Today’s announcement is yet another demonstration of how every arm of government is working to keep Australians in jobs and businesses in business, and to build a bridge to recovery on the other side,” Mr Sukkar said.

The ATO has undertaken to review these arrangements in line with COVID-19 developments to see if they are required for the next financial year.

ATO example:

Bianca is an employee who works as a copywriter and editor. Bianca starts working from home on 16 March as a result of COVID-19 and replaces her face-to-face meetings with online video conferencing. 

Bianca has just bought a new laptop, desk, chair and stationery. She also wants to claim some additional gas, electricity, phone and internet costs due to working from home.

Under the shortcut method, Bianca can now claim all her expenses under a rate of $0.80 per hour and all she needs is her timesheets.

Bianca can also decide to claim a deduction for work from home for the period of 1st July 2019 to 1st March 2020 using existing working-from-home calculations. Under that method, she can claim the desk, chair, gas and electricity under the $0.52 per hour, but she would need to work out the decline in value of the laptop and calculate the work-related portion of the laptop, stationery, phone and internet.

If you have any questions or need advice and clarity specific to your business, feel free to contact Semmens & Co on 03 8320 0320 for a free consultation.