Working from home deductions – what you can and cannot claim

With the end of the financial year not far away, the Australian Taxation Office is reminding us how best to navigate working-from-home deductions.

If you’ve ever tried to calculate your own tax deductions based on ‘work expenses’, you’ll probably know it can be a real minefield and can be confusing at every turn. The ATO recognised this and, given the huge number of Australians who were forced to work from home in 2020/21, it introduced a temporary shortcut method to help employees claim for the costs of working from home, without all the hassle of keeping receipts and needing to do complex calculations for specific items.

The working-from-home shortcut method lets taxpayers claim a single, all-inclusive rate of 80 cents per hour, and it can be claimed by multiple people living under the same roof.

Importantly, unlike existing methods, it does not require a dedicated, discrete work area to be reserved as your home office.

“Even with people shifting back to the office, we know many Australians have opted to continue working from home at least one day a week,” Assistant Commissioner Tim Loh said.

According to the Assistant Commissioner, the only proof you need is a record of the number of hours you’ve worked from home, such as a timesheet.

However, it’s worth remembering that the short-cut method may not be ideal, especially if you are a sole trader, or your work-related expenses are quite significant. In this case, the existing methods may be more beneficial to you, even if it does mean keeping receipts and invoices.

“If you decide to go with an existing method, I would encourage you to do your research and keep good records,” said the Assistant Commissioner, and he also recommends being well-organised, and getting advice from professionals, such as WhiteStar Group.

Common errors flagged by the ATO that many taxpayers make when claiming working from home expenses include:

  1. Personal expenses such as tea, coffee and toilet paper, and other things that might generally be supplied by an employer but aren’t directly related to income-earning.
  2. The costs of home-schooling children during lockdown, such as online courses or computers.
  3. Employees claiming large expenses upfront. Only capital items under $300 can be claimed immediately. Work-related items above $300 (such as a new laptop) must be claimed over the designated ‘life’ of the item.
  4. Confusing place of work with place of business. This might seem technical, but if you are simply working from home as an employee of someone else – i.e. not running your business from home – then you generally cannot claim occupancy expenses such as rent, mortgage interest, home insurance etc. If you do claim occupancy expenses on your own home, you may be subject to capital gains tax when you sell it, even if it is your main residence.

Even with the easier 80 cents per hour method, it’s still wise to have a professional tax expert such as a WhiteStar Accountant prepare your tax return so that you’re better able to claim all the things you’re entitled to and not accidentally deducting the things you can’t