Tax Deductions Limits
The way we work is changing, and for many people working from home is the new normal. Deductions working at home allows for a huge amount of flexibility plus there are numerous ways to deduct home office costs in your tax return.
Many people don't know they are able to claim Deductions Working at home and often miss out on valid deductions. But it's important to make sure you stay within the rules to avoid being penalised for making a mistake.
The most common errors are: claiming too high a work-related proportion for a particular type of expense, claiming something that shouldn't be claimed at all or simply not keeping records to substantiate the expense.
If you work from home (either part-time or full time) then some portion of the home office expenses may be claimed as a tax deduction. Deductions working at home, if you set up your home office in a room that is shared or has a dual purpose (such as a living or dining room), you can only claim the expenses for the hours you had exclusive use of the area.
What are the rules for Deductions Working at home?
If your home is your place of work and you have an area set aside exclusively for work activities, you may be able to claim both occupancy and running expenses. If you carry on your work or business elsewhere (such as an office) but do some work at home occasionally, you cannot claim occupancy expenses even if you have a home office area set aside.
Home office expenses you might be able to claim include:
- Occupancy expenses Such as rent, mortgage interest, rates, land taxes and house insurance premiums (but only in limited circumstances).
- Heating, cooling and lighting You have to heat your home office in the winter and keep it cool during the summer. You also need light to see what you're doing! That means that you can claim a proportion of the various household utility bills that relate to the time you spend working in your home office. You can't claim for periods where the home office space is being used for other purposes and nor can you claim for the element of your bills that relates to the rest of your home.
- Home office equipment, including computers, printers and telephones You can claim the full cost (for items costing up to $300) or the decline in value (for items costing $300 or more). If you're self-employed, you may be able to immediately write-off equipment costing up to $20,000.
- Work-related phone calls (including mobiles) and phone rental You can claim a portion reflecting the share of work-related use of the line if you can show you are on call, or have to phone your staff, employer, customers or clients regularly while you are away from your workplace.
- Depreciation of home office furniture and fittings If you kit out your home office with furniture such as desks, shelving and cupboards, you can claim a deduction for the decline in value of that furniture to the extent that it relates to your work activity. That's likely to lead to a write-off of the cost over a period of several years (the "effective life" of the asset).
- Depreciation of office equipment and computers Similarly if you purchase items of technology for use in your home office, you can depreciate them over their life and claim a deduction each year for the work-related element. That might include:
- Mobile phones
- Other items Make sure you claim for the work-related proportion of other costs such as:
- Computer consumables (like printer ink)
- Telephone and internet costs
- Cleaning costs
- Costs of repairs to your home office furniture and fittings
The table below shows the deductions you can claim for the three ways you can work at home:
|What you can claim||How you work|
|Home is your place of business or work and you have a home work area||Home is not your place of business but you have a home work area||You work at home but you don't have a home work area|
Cost of owning or renting the house
Cost of using a room (such as gas or electricity)
|Business phone costs||Yes||Yes||Yes|
|Decline in value of office plant and equipment (such as desks, chairs and computers)||Yes||Yes||Yes|
|Depreciation of curtains, carpets, light fittings, etc||Yes||Yes||No|
How much can I claim, Deductions Working at home?
There's no maximum amount that you can claim. Provided that the amount you're claiming is calculated in accordance with the rules and that you have the necessary substantiation to back up your claim, you can claim whatever you're entitled to.
Methods of claiming, Deductions Working at home.
Receipts or other written records/evidence
In making home office deductions, ensure that you can substantiate all expenditure claims through receipts of diaries. This includes:
- Receipts for items of equipment you have purchased
- Diary entries you make to record your small expenses ($10 or less) totaling no more than $200, or expenses you cannot get any kind of evidence for, regardless of monetary amount.
- Diary indicating your running expenses related to working in your home office. Here, you need to detail the time you spend in the home office compared with other users. Keep a diary record for a minimum 4 week representative period. This can also include calculations of how much you used your equipment.
- Itemised phone accounts from which you can identify work-related calls.
Australian Tax Office rate per hour
As an alternative to keeping such records, you can use a fixed rate of 52 cents per hour for each hour that you work from home to allow for home office expenses. Under this method, you can also include the decline in the value of office equipment (such as computers and faxes) but not furniture. In this case, you are unable to make additional claims for individual items.
The following costs are not deductible as part of home office expenses:
- Mortgage or interest costs
- Rates and taxes
- Depreciation on the home.
The ATO has implemented a shortcut method to cover the period from 1 March to 30 June 2020. During this time you claim a deduction for $0.80 per hour of documented work, and this covers all deductible running expenses. But note that, if you use this method, you cannot claim any other expenses for working from home for that period.
Method 1: Actual running expenses
Betty has the following home office running expenses, including energy expenses that have been calculated using electricity authority hourly costs per appliance. The figures are based on four weeks of diary entries.
|Deduction amount – this year $||Deduction amount – future years (assuming similar use) $|
|Decline in value of desk||Value $350 over 10 years||35.00||35.00|
|Decline in value of chair||Value $150 over 1 years||150.00||Nil|
|Electricity for 60W ceiling light||0.7c per hour for 10 hours per week for 48 weeks||3.36||3.36|
|Electricity for computer||1c per hour for 10 hours per week for 48 weeks||4.80||4.80|
|Electricity for heating/cooling||9c per hour for 10 hours per week for 48 weeks||43.20||43.20|
|Total deductible amount||236.36||86.36|
Method 2: Rate per hour
Using this method, Betty is able to use a simple and quick calculation for her expenses: 52 cents per hour for 10 hours per week for 48 weeks = $249.60.
Note: Method 1 gives a greater deduction for Betty this year because of the immediate write-off of a chair costing less than $300. However, Method 2 will allow greater ongoing deductions with a simpler calculation assuming that future use and electricity costs remain similar.
Remember – if you are not sure if you can claim an expense, keep the receipt and we will ensure that we claim all allowable deductions and rebates for you whilst preparing your tax return.
This information is intended as a guide for Australia Wide Tax Solutions clients. All actual detail and circumstances differ, please discuss your situation with our registered tax agents. Remember – if you are not sure if you can claim a Deductions Working at home, keep the receipt and we will ensure that we claim all allowable deductions and rebates for you whilst preparing your tax return.