New tax shortcut when you work from home but should you use it?

As many Australians now find themselves working from home full time, the Australian Tax Office (ATO) has announced some changes to work from home tax deduction rules aimed at making it easier for people new to working from home to make a claim.

In short there are two main changes announced. Firstly, the old requirement to have a dedicated home office or study to make a claim has been removed. The kitchen table or couch are now allowed.

Second, a new running expenses shortcut rate of 80c per hour worked from home has been announced. While on the surface, an increase to the rate from 52c per hour sounds attractive, depending on your circumstances it may not get you the biggest deduction come tax time.

The details and examples below only apply from March 1, 2020 to June 30, 2020. The standard rules apply for work from home expenses prior to March 1.

How to make a claim for work from home expenses after March 1

Traditionally, you could make a claim two ways for work from home tax deductions:

Running Expenses: Claimed at 52c per hour for heating, lighting, cooling etc. Plus, you could separately claim the work-related portion of your phone, internet, computer depreciation and other expenses.

Occupancy Expenses: Claiming the work-related portion of your heating, lighting cooling based on the size of your home office. Plus, you could separately claim the work-related portion of your phone, internet, computer depreciation and other expenses.

Now, the new Shortcut Method has been introduced. This is a rate of 80c per hour, but this also includes phone, internet, electricity and computer depreciation and consumables. The advantage here is all you need are your timesheets to make a claim. However, depending on your situation it may not give you the best possible claim.

Comparing the two methods

To start, we're leaving occupancy expenses out of this discussion. If you already claim occupancy expenses, it's likely to still be your best bet. Continue claiming the same way you usually do. If you don't use occupancy expenses already, we'd recommend steering clear as it gets quite complicated. Or get in touch with a tax agent who can work out if that method is right for you.

It comes down to one key factor when comparing Running Expenses with the new Shortcut Method: How much do you use personal items like mobile phone and internet in the course of working from home?

The "how much question" is likely to be different for everyone and to get it right you'll probably need to do a bit of maths.

Example 1 - Susan

Susan is an architect who now works her 38 hours per week from home instead of the office. She keeps track of her mobile phone and internet use for one month during April and works out that 50% of her mobile phone use is work related and her internet is 60% work related. Let's compare the two methods for Susan:

Running Expenses:

• Susan can claim 38 hours per week x 52c x 16 weeks (March - June) = $316.16
• Susan can claim 50% of her $99 monthly phone bill x 4 months = $198
• Susan can claim 60% of her $80 monthly internet bill x 4 months = $192

Susan's total work from home claim for March - June = $706.16

Shortcut method:

• Susan can claim 38 hours per week x 80c x 16 weeks = $486.40
• Susan can't claim phone or internet as it's included in the 80c per hour rate.

In this case, Susan's work from home deduction claim would be $219.76 higher by claiming the standard Running Expenses rate of 52c per hour, and her phone and internet separately.

Example 2 - John

John is a product manager at a construction company who now works his 38 hours per week from home instead of the office. He has a company laptop and company mobile phone, but uses his home internet that he shares with his wife. His home internet use is 50% of his total internet use.

Running Expenses:

• John can claim 38 hours per week x 52c x 16 weeks (March - June) = $316.16
• John's monthly Internet bill is $80 a month which he shares with his wife 50/50. Therefore, John's share of the internet bill is $40 and he can claim 50% of that amount for 4 months = $80

John's total work from home claim for March - June = $396.16

Shortcut method:

• John can claim 38 hours per week x 80c x 16 weeks = $486.40
• John can't claim his internet as it's included in the 80c per hour rate.

In John's case, the work from home deduction claim would be $90.24 higher by using the new Shortcut method.

For any claim, the standard deduction rules apply: you must have paid for the expense out of your own pocket, it must be directly related to your work and you can't have been reimbursed for the expense already.

As you can see, the new announcement will affect taxpayers differently. It pays to spend a bit of time working out whether the new 80c Shortcut Method really is best for you, and always seek the advice of a tax agent if you're not sure. Remember it's the ATO's job to collect taxes, not help you get the best possible refund.

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