ATO’s New 80 cents per hour Home Office Expense Claim - How do I claim Home Office Expenses?
In April this year, partially due to the effects of Coronavirus on the country, the ATO announced a temporary simplified short cut method to claim home office expenses. In short, for any work from home that you did in the period 1st of March 2020 to 30th of June 2020, a deduction of 80 cents per hour of work can be claimed. Is this a benefit? The short answer is yes, but there may be a better way depending on your situation.
The value, as we see it, in the shortcut method is in the record keeping requirement. If you use the shortcut method, there is no requirements to have a separated dedicated area for work, there is no dilution based on the number of people living in the property and the only requirement to keep records is merely a record of the hours you worked from home during the period. This makes the shortcut method particularly enticing to many people, but let’s consider how the calculation would play out.
As an example, consider Robert earned $60,000 in the 2020 financial year. This would place him in the 32.5% tax bracket (ignoring Medicare Levy etc.). Robert works full time (38 hours) at an accounting practice in the Melbourne CBD. Between the 1st of March and 30th of June 2020, Robert was ordered to work from home, whilst maintaining his current workload of 38 hours per week. This would mean that Robert has worked 85 days at home, at approximately 7.6 hours per day. In total, he has worked 646 hours from home in this period, the deduction he would be able to claim is about $517 (646 x 0.8). This would save him about $168 in tax for the year ($517 x 32.5%).
Now consider that Robert has a dedicated room to work in and wanted to claim actual expenses. Robert lives at home with his wife in a 3-bedroom home. The designated work area accounts for 15% of the floor space in the property that is able to be utilised (in accordance with ATO rules). In the above mentioned 4-month period, Robert spent $300 on electricity, $240 on home internet, $200 on equipment and $250 on his personal mobile. He also purchased a $1,500 laptop (depreciated at 50%) and $200 on miscellaneous office furniture (claimed outright). This would give Robert a total claim of $1,068.50. This translates to a tax saving of $347.26, nearly $200 higher than the previous method. Note, this would not have been the same result if Robert had not purchased that laptop!
The short cut method is fantastic in its simplicity and generosity but should not be seen as the only method of claiming home office expenses. It is important to speak to a qualified and registered tax agent so that the best deduction choice based on your personal circumstances is utilised, it could save you hundred or thousands a year.