The cost of establishing and using a 'home office' has become a significant expense for many employees who now work from home on a regular basis. In this article, we answer common questions about which, and how much, of your home office expenses are deductible.
As an employee, you can deduct the additional running costs and phone and internet expenses you incur as a result of working from home.
The ATO allows the following administrative 'short-cuts' for calculating certain home office deductions.
- A fixed rate of 52 cents per hour worked at home for additional running costs (electricity, gas, cleaning and the decline in value of home office furniture and furnishings). This method cannot be used for the decline in value of electronic devices, computer consumables or stationery. You must keep records of the hours you work from home.
- A deduction of up to $50 per year for work-related phone and internet expenses. You must keep basic records of work-related calls and text messages and, for data usage, time spent or data used for work purposes.
In response to COVID-19, the ATO has allowed taxpayers to apply a fixed rate of 80 cents per hour worked at home for all additional running costs, phone and internet expenses, the decline in value of electronic devices, computer consumables and stationery. You must keep a record of the hours you work from home (e.g. a timesheet, roster or diary). This special rate is available from 1 March 2020 to 30 June 2020 (but may be extended).
Where the short-cut method is not chosen or cannot be used (e.g. for electronic devices), the deductible amount must be calculated as the work-related proportion of your actual costs and supported by documentary evidence. Below are answers to common questions about using the 'actual costs' method.
Can I claim a deduction …
... for my computer/tablet, mobile phone, printer/scanner, desk, office chair etc.?
You can generally deduct the full cost of home office equipment in the year of purchase if:
- the item cost $300 or less
- you use the item for work purposes more than 50% of the time
- the item is not part of a set (e.g. a set of chairs) with a total cost exceeding $300
- the total cost of the item and any other substantially identical items (e.g. two identical monitors) does not exceed $300.
If the equipment cost more than $300, you may deduct the equipment's decline in value to the extent of its exclusive work-related use. If you initially used the item solely for private purposes and later began using it for work-related purposes, you must take into account the item's decline in value over the period of its private use first. If the item has already reached the end of its 'effective life', no part of the equipment's cost is deductible. The ATO's general view is that the effective life of personal computers is 4 years, laptops and tablets is 2 years, mobile phones is 3 years, printers and scanners is 5 years, office chairs is 10 years and desks is 20 years.
... for my power bills (heating, cooling, lighting)?
You can deduct the additional power costs you incur exclusively as a result of working from home. This means a deduction is:
- available if you work in a room alone or use a separate 'home office' room
- not available if you work in the living room while family members watch TV.
The allowable deduction for each appliance should be calculated as follows:
Cost per unit of power used x average units used per hour x total hours used for work-related purposes
However, the ATO will generally accept a genuine estimate based on a reasonable percentage of the annual household power bill.
... for my phone and internet bills?
You can deduct your work-related phone and internet expenses based on a reasonable apportionment. The following bases may be reasonable:
- for mobile phone expenses:
- number of work calls / total number of calls
- time used for work calls / time of all calls
- for data usage expenses:
- time spent using the internet for work purposes / total time spent using the internet by all users
- data used for work purposes / total data used for all purposes by all users.
If you have a bundled phone and internet plan, you should identify the value of each bundled component and apply a reasonable apportionment of your work-related use to each component over a representative four-week period.
... for my rent, interest, property insurance, rates and/or land tax?
Employees cannot claim deductions for occupancy-related expenses such as rent, mortgage interest, property insurance, rates and land tax. The exception is if you operate a business and use part of your home exclusively as a place of business.
... if I paid my kids to assemble my IKEA home office furniture?
Deductions for a depreciating asset are calculated based on the asset's 'cost', which includes labour that has contributed to bringing the asset to its present condition. In this case, the cost of your kids' services is deemed to be their market value (rather than the amount actually paid to your kids). Depending on their dexterity, the market value of their services is likely to be minimal.
... if my employer reimbursed me for any of these expenses?
You can only claim a deduction if you incurred the expenses and have not been reimbursed.
... if my employer paid me an allowance to cover my home office expenses?
You must report the allowance as assessable income and can claim deductions under the usual rules. If the allowance is greater, the excess is taxable income.
... if the invoices for home office expenses are not in my name?
If you have contributed to the cost of a home office expense but the invoice is not in your name, you must keep other evidence to demonstrate that you have incurred that expense - for example, bank statements showing your payments to a utilities provider.
Which method should I use?
While the '80 cents' and '52 cents' methods are simpler, the 'actual costs' method may give rise to a greater deduction - particularly in a year in which you purchased significant depreciating assets such as home office furniture and electronic devices.
When using the actual costs method, it is critical to keep all relevant records of the existence and amount of each expense (e.g. invoices, receipts and bank statements) and be able to demonstrate that you have applied a reasonable basis of apportionment. The ATO allows taxpayers to prove their deductible home office expenses with records from a representative four-week period and to multiply the result of that period over the working year. You should not adopt this approach if your work use was not constant throughout the year.
Cooper Grace Ward is a leading Australian law firm based in Brisbane.
This publication is for information only and is not legal advice. You should obtain advice that is specific to your circumstances and not rely on this publication as legal advice. If there are any issues you would like us to advise you on arising from this publication, please contact Cooper Grace Ward Lawyers.