fbpx

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:

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 areaHome is not your place of business but you have a home work areaYou work at home but you don't have a home work area
Occupancy expenses
Cost of owning or renting the house
YesNoNo
Running expenses
Cost of using a room (such as gas or electricity)
YesYesYes
Business phone costsYesYesYes
Decline in value of office plant and equipment (such as desks, chairs and computers)YesYesYes
Depreciation of curtains, carpets, light fittings, etcYesYesNo

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:

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:

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.

Examples

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 deskValue $350 over 10 years35.0035.00
Decline in value of chairValue $150 over 1 years150.00Nil
Electricity for 60W ceiling light0.7c per hour for 10 hours per week for 48 weeks3.363.36
Electricity for computer1c per hour for 10 hours per week for 48 weeks4.804.80
Electricity for heating/cooling9c per hour for 10 hours per week for 48 weeks43.2043.20
Total deductible amount 236.3686.36

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.