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ATO Watching Work From Home Deductions Closely

As the ATO is progressing on processing 2021 Tax Returns, they are taking a special interest in work from home deductions.

Work-related expenses will continue to look different from the pre-COVID time for a while yet.

There are three ways to calculate the tax deduction for home office expenses:

Fixed-rate method

52 cents per work hour for additional running expenses (electricity, gas, cleaning and depreciation on furniture).  Taxpayers can still claim the work-related proportion of additional expenses not covered by the fixed rate (eg phone, internet, computer consumables & equipment, stationery etc)

Actual cost method

The actual expenses you incur as a result of working from home

Shortcut method

An all-inclusive 80c per work hour, only available from 1 March 2020 to 30 June 2022

Almost one-in-five taxpayers have taken advantage of the temporary work from home shortcut method to claim deductions, which was introduced as work patterns changed during the pandemic.

It allows taxpayers to claim a flat 80¢ an hour for work from home expenses incurred from 1 March 2020 to 30 June 2022.  The government is yet to decide if there will be any further extensions.

One advantage of the shortcut method is that taxpayers do not require a dedicated workspace at home, a necessity for the other two ways to claim.

However, it means that no other deductions can be claimed eg for phone, internet, computer consumables & equipment, stationery etc).

Therefore, it is important to keep your records, including the number of hours worked from home, so that we can calculate your home office deduction each way and claim using whichever method results in the best tax deduction for you.

As working from home is now the single largest source of deductions, the ATO won’t allow anything that falls outside its guidelines.

The ATO is watching out for people still claiming travel expenses and laundry expenses even though they’re working from home full time.  

We also note that the fact that something was typically provided at work, does not automatically make it deductible.

The ATO has advised that they have already had to knock back deductions for:

  • “We’ve seen claims for toilet paper, tea, coffee and biscuits because ‘if they’re provided at work then you should be able to have them at home’.
  • “Doggy daycare is another one. Someone didn’t actually want their dog at home because it’s too destructive, so they decided they were going to try to claim doggy daycare.
  • “And good old Ugg boots – who doesn’t love a pair of Ugg boots.
  • Another claim ruled out concerned the cost of setting up children for homeschooling.

Golden Rules

The ATO has stressed the three golden rules still applied:

  • The money must have been spent, and not reimbursed.
  • The expense must have been directly related to income.
  • There has to be a receipt.

It is also important to only claim the work-related portion of any expense as the ATO is also watching out for people claiming 100% of their phone and/or internet expenses when there is obviously some private use.

So, please keep your records & receipts so that you can claim the correct, maximum amount of tax deductions in your return. 

Get in Touch

Please give us a call if you have any queries about what you can & can’t claim or what records to keep.

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