Working from home? Some example scenarios and tax implications

Update: this article now includes references to the ATO’s latest announcement of the ‘shortcut method’ to claim working from home tax expenses.

To help you to get your head around the income tax implications of working from home, we’ve created a handful of scenarios. We don’t expect these to suit everyone’s circumstances but we’ve done our best to capture the most common situations. If these scenarios don’t match your circumstances, have a read of our other working from home tax content. This covers what you can claim and how you calculate deductions for your home office expenses plus we have some simple guides too.

If you’d like personalised support from an specialist, we have two options:

  • 10 minute tax chat – it’s free and can help you get that tricky question sorted
  • Tax companion –  helpful if you have more than one question or complicated issues to work through. It costs $259 and you’ll get a free first lodgement (income tax or BAS) a generic 10 minute tax chat for a quick 10 minute discussion, or we can offer a Tax Assist service when completing your tax return.

Five working from home tax scenarios

Tilly – she’s self isolating, and working from her home office

Jose – he’s working from home a couple of days a week off his kitchen bench

Peter – he’s normally on a worksite, but they are closed, so is working at home

Rohit – he’s an employee and does some gig economy work in his spare time

Charlotte – she’s a sole trader and works at home a lot

Tilly – she’s self isolating, and working from her home office

Normally working in the city, Tilly works in a leadership role for a major bank. From Mon 9 Mar 2020, she was asked to work from home full time whilst self isolating and has a dedicated space for her work.

As a result:

  • Tilly can take advantage of the fact she has a dedicated home office and is able to claim back some of her gas and electricity costs, which she does using the cents per hour method. She keeps a record of the number of hours worked and multiples by the ATO agreed rate of 52 cents per hour.
  • In addition, she also purchased a monitor and riser for this period of work, which her employer did not reimburse. They were under the $300 threshold which means she can claim them back on her tax return in full. She just needs to keep the receipt in order to do so.
  • Despite numerous conversations with her partner about whether this is possible, she can’t claim a portion of the rent whilst working at home – it is considered a private expense.
  • Update: Tilly may choose to use the ATO’s new ‘shortcut method’ of 80 cents per hour instead of the flat rate 52 cents per hour method as she began working from home after 1 Mar 2020. If this were the case then all her home office expenses (including her monitor and riser would be captured by this method. Read more about the new ‘shortcut method’.

Jose – he’s working from home a couple of days a week off his kitchen bench

Working for a health services provider in administration, Jose is able to work from anywhere thanks to his company’s policy. For most of this last financial year, he’s been working at home a couple of times a week and lives in a one bed apartment, which means he tends to work off his kitchen bench.

As a result:

  • Jose is able to claim his internet and phone expenses (which are not paid for by his employer) and he does this by keeping a diary of actual usage. He finds this the easiest way to do so. He wanted to claim his cleaning costs using the same method, but he can’t since he doesn’t have a dedicated work area.
  • He is considering buying a new headset, which is under $300 and if he does, he knows he can claim this in full in his tax return.
  • He was also hoping to claim the depreciation for his light fittings, carpets and curtains because his friend does. Unfortunately since Jose doesn’t have a dedicated work area he is unable to do this.
  • Update: with the ATO’s announcement of the new ‘shortcut method’, a dedicated workspace is not required to claim 80 cents per hour fixed rate. This method is only valid for working from home expenses incurred between 1 Mar – 30 Jun 2020 therefore Jose can use this new method, which includes all home office expenses for the 1 Mar – 30 Jun 2020 time period. For the days he was working from home prior to 1 Mar, he must use the traditional 52 cents per hour method. Learn more about both methods here.

Peter – he’s normally on a worksite, but they are closed so is working at home

Peter is a structural engineer, who works for a firm spending 25% of his time in the office and 75% of his time on a worksite. Due to current conditions, he is not working at either the office or worksite.

As a result:

  • For the time being, he is working at home and can claim his internet and phone using the actual method, and his gas and electricity which he does using the 52 cents per hour method.
  • Peter also took a trip to a local store and spent $1,500 on a new specially designed ergonomic office chair, monitor, mouse, keyboard and stand up desk. He is going to use the depreciation method, and he has calculated to depreciate the $1,500 over a 4 year period.
  • Update: with the ATO’s announcement of the new ‘shortcut method’ Peter can choose the fixed rate of 80 cents per hour to calculate expenses. This method is only valid for working from home expenses incurred between 1 Mar – 30 Jun 2020. This method includes all home office expenses for that period. Learn more about this method here.

Rohit – he’s an employee and does some gig economy work in his spare time

Working day to day as a developer leaves Rohit a little time to work in the evenings on his freelance projects. The company Rohit works for does not provide his equipment (laptop, etc.) for working and he uses his own. He also uses this for his freelance work which he does under his own ABN.

As a result:

  • Since Rohit has purchased his own equipment (laptop, printer, office furniture) for working, he is entitled to depreciate the cost of this, but must separate out any private usage which is not claimable.
  • Additionally Rohit can claim the expenses he incurs for his phone and internet usage.
  • Rohit keeps a detailed diary log of his expenses, which includes the amounts he spends, the number of hours he works and receipts of the items he has purchased (including amounts).
  • Since Rohit is a sole trader who has his own ABN and is registered for GST, he also submits quarterly BAS returns and his annual tax return includes expense items within the sole trader section of his tax return.
  • Update: As Rohit lives alone and  is already working from home regularly and is claiming depreciation on his office equipment, he decides that he is better off not making use of the ATO’s newly announced 80 cent per hour ‘shortcut method’ for the period 1 Mar to 30 Jun 2020.

Charlotte – she’s a sole trader and works at home a lot

Charlotte works for herself as a freelance writer which means she spends most of her days at home in her own office space. She has set up a desk, computer, and printer in her study which is used entirely for business (with no private use). Charlotte also has a separate phone that is used entirely for taking business calls.

As a result:

  • Charlotte is able to claim a deduction for the decline in value of all of her office equipment, including the computer, extra monitor, desk, and chair.
  • As her phone is used entirely for a business purpose, Charlotte is able to claim a deduction for her calls and data, as well as the amounts she pays each month for the phone itself.
  • It appears Charlotte may be running a business from her home and if this is the case, Charlotte is able to claim a deduction for her rent and home insurance (occupancy expenses). These amounts need to be apportioned so that the deduction claimed only represents the costs that relate to her study. To calculate this, Charlotte will need to divide the floor area of her study, by the total floor area of her home. She can then apply this rate against her occupancy expenses (e.g. rent and insurance).
  • Update: as Charlotte operates her business from home, it’s unlikely her working from home is related to the COVID-19 pandemic therefore the new ‘shortcut method’ is not applicable to her circumstances.
Written by: Alex Whitehead

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