It’s a common scenario – an employee legitimately works at home some of the time. This is even more common now that we are living in a COVID-19 world. So, what can the employee claim for tax purposes? Gas, electricity, office desks/chairs, phone, home loan interest, insurance, rates, etc? Well, unfortunately the answer’s not always that simple.
Before going into the details, it’s worth pointing out that there are some costs that will always potentially be deductible:
- Phone expenses
- Internet expenses
- Computer consumables (e.g. printer ink)
- Stationery
- Depreciation on items such as computers, laptop and phones
- Gas and electricity
Like any deduction, all the above costs need to be reduced by any private component. E.g. if an employee works at home 2 hours a week, has a few kids that spend a large amount of time online, watches a large amount of Netflix, etc. than it would be unreasonable to claim 80% of their monthly internet bill as a deduction. 5% – 10% might be more appropriate.
Then there’s what’s known as occupancy costs:
- Depreciation on curtains, carpets, etc
- Rent
- Home loan interest
- Home insurance
- Council rates
Occupancy costs can only be claimed in very limited circumstances. To claim these expenses, an employee needs a dedicated work area (e.g. office) that’s used primarily or exclusively for work activities. An office type room often won’t tick this box if it’s also used for non-work storage, spouse’s work or kids’ schoolwork. Assuming that there is a dedicated work area, the occupancy costs can then be apportioned in the same way. E.g. if the dedicated work area makes up 10% of the total house by floor area, then 10% of the occupancy costs can be claimed.
Beware when claiming occupancy costs! If an employee is able to claim occupancy costs and chooses to do so, then that portion of the home is no longer classified as their principal place of residence for capital gains tax purposes. This means that if the house is later sold at a profit, they will be liable for tax on any profit relating to the work-related area. I don’t intend to go into detail about capital gains tax in this article – but the point is that claiming occupancy costs could be costly.
Is there any alternative?
Yes – the ATO offer a set amount per hour an employee can claim for depreciation on equipment, electricity and gas and home office repairs. The amount is $0.52 per hour (for the 2020 financial year). The employee needs to be able to estimate the number of hours they spent working from home to claim this. Also, during 1/3/20 – 30/6/22, the ATO offers a shortcut rate of $0.80 per hour. The shortcut rate also includes phone and internet costs as well. The employee should consider which method gets them the higher deduction for their home office costs.
