The start of 2020 has been unprecedented – bushfires ravaging huge parts of the country and then a global pandemic. Everyone has been impacted in some way and many people will be keen to lodge their tax returns early, hoping for a much–needed cash refund.
Let’s have a quick look at how these two issues may impact your tax return.
Many Australians gave generously to people impacted by the summer bushfires. If you donated cash, you can claim a tax deduction – but just check you have a receipt and the organisation you gave to was a Deductible Gift Recipient (usually the receipt will have words such as “Gifts over $2 are tax deductible”).
Unfortunately, if you gave clothes, food, toys, etc you can’t claim a tax deduction for their value unless it was more than $5000.
Working from home expenses
Many businesses closed their doors during the COVID-19 lockdown and asked employees who were able to work from home to do so.
Some people had a study, some people worked on the kitchen table, some even worked outside when the weather was nice – it was interesting seeing people’s homes in the background of a Zoom call, and meeting their kids, pets, partners as they wandered around.
But claiming a tax deduction for home office expenses requires a bit of thought. There’s been a lot of talk about claiming a tax deduction for 80c/hour, but what does this mean?
There are three ways you can claim deductions for home office expenses – the “short cut method” (80 c/hour), the “fixed rate method” (52 cents / hour) and the “actual cost method”.
Short cut method
This is a special COVID-19 measure which lets you claim a tax deduction of 80 cents per hour worked from home for the period 1 March to 30 June 2020.
You need to keep a record of how many hours you worked from home. While there are no prescriptive record-keeping rules, your diary will be a good start but you might want to take into account disruptions during the day, especially if you were helping children with their on-line schooling, taking the dog for extra walks, etc.
If you use this method it covers everything – your phone, internet, electricity, gas and decline in value of equipment and furniture. The last part is important – if you bought a new printer (including paper & ink), desk, chair, etc you can’t claim a separate deduction for these amounts because they are all included in the 80c/hour.
You can use this method regardless of whether you had a dedicated work space at home – it doesn’t matter if you had to put your work stuff away so the family could eat dinner.
Fixed rate method
This method is always available, but you do need a dedicated work area at home. You can claim a deduction of 52c/hour which covers electricity, gas, decline in value of furniture (eg desk and chair) and repairs.
Unlike the short cut method, it doesn’t include claiming for your phone, internet, printer ink & paper, or decline in value of equipment (such as laptops, etc). If you want to claim for these items you need to work out your business vs personal use and just claim the business use.
Working out your business portion of phone and internet usage can be difficult, especially where the services may be bundled together. The ATO wants you to keep a record of your work use over a representative four-week period, which means you also need to look at how others in your household use the services to watch movies, sport etc.
Actual cost method
This is a more complicated method where you need to work out the additional running costs you incurred because you worked from home.
You need a dedicated work space and you will need to go through all of your home bills to try to work out the correct amount (probably based on the floor area of your home office compared to the rest of the house).
Which method should you use?
It all comes down to your personal circumstances, so what’s best for one of your friends may not be best for you. The good news is you can use whichever method gives you the greatest tax deduction.
If you spent a lot of money setting up your home office or you live in a tiny flat, you might find the “actual cost method” gives you the best deduction, so it’s worth the extra effort.
But, if you just brought your laptop home and worked on the kitchen table the “short cut method” (ie 80c/hour) might be best.
What can’t you claim?
Regardless of the method you use, there are some costs you absolutely cannot claim:
- Coffee, tea, milk etc. even if your employer would have supplied them
- Setting up the kids at home for online learning
- Anything your employer reimbursed you for
- Occupancy costs such as rent, mortgage, water and rates
It can be a bit tricky and there are different rules if you run your business from home. If you have any questions, it’s worth speaking with your accountant.
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