Author: Andrew Dunbar, Director and Senior Financial Planner, Apt Wealth Partners
With so many Australians working at home in 2020, this yearís tax deductions are going to look a little different. If youíre an employee and have worked from home, itís vital to know what you can claim, and know your options. Itís also important to consider your tax plan, super contributions and income protection insurance deductions.
Here some valuable tax tips for the 2019/2020 financial year.
Work from Home Employees
What can you claim?
Employees who have worked from home in 2020 - as opposed to a business owner operating from home - can claim a proportion of household and personal costs that were used to perform your usual duties.
The Australian Tax Office (ATO) defines these expenses as those that:
Are directly related to your income
You incurred (and not someone else)
Are documented. You must keep a record to prove the cost was incurred.
Some typical examples of these costs include:
Phone and internet expenses
Lighting, heating and cooling
Workspace cleaning costs
Running expenses, including printer ink or toner that you have purchased
Furniture and small equipment costs (under $300) that can be written off in full
Depreciation and any repair costs for your furniture and your own office equipment.
What canít you claim
Employees working out of home cannot claim any percentage of:
Housing costs, including rent, mortgage repayments and interest
Equipment, consumables or other items that were paid for or provided by your workplace, or anything that you paid for but have been reimbursed for
Household consumables, such as coffee, tea and biscuits that would typically be provided by your workplace
How to claim
In response to a significant increase in work-from-home deductions, the ATO has announced a simplified way to claim. In 2020, there are two options for how you claim your expenses:
Claim a percentage of actual running costs
This is the traditional way of claiming that involves calculating and claiming a percentage of your household costs that were used for work. These include internet, electricity, cleaning, technology purchases and office consumables.
This can be a time-consuming process, as you will have to calculate the actual time and resources used for your duties. These include:
Electricity - calculating the number of hours worked from home and the amount of power used per hour, then multiplying the hourly power usage expenses by the number of hours worked
Cleaning costs - dividing your cleaning expenses by total floor space in your home to get a per square meter rate, then multiplying this by the amount of space used for your workstation
Internet and phone - calculating the exact cost of calls or data used for work duties.
Itís important you also account for usage by other members of your household, so it can be quite a challenging process. While this method may lead to the most accurate calculation, it will require you to have extensive supporting documentation.
The Short Cut Method
This new method allows you to claim $0.80c per hour worked from home. This covers all of the expenses listed above, and only requires a simple calculation of the number of hours worked at home.
This is the simplest method that requires keeping fewer records and is certainly less time consuming than calculating actual expenses. For the majority of people, this is likely to be close to accurate, easier to document and less likely to be scrutinised.
If your work is using a significant portion of your floor space, consuming large amounts of your data or running lots of appliances, it may be worth claiming the actual running costs.
You need to be able to prove any expenses you claim. The ATO may request documentation, and you should be able to show proof of hours worked, such as with formal timesheets, a diary or calendar records.
Those who decide against the new shortcut method will need extensive documentation, such as:
Receipts for furniture or equipment purchases
Phone, electricity and internet bills
Calendar entries for small purchases under ten dollars.
To protect yourself from scrutiny AND make the most of your deductions, check out Working from Home During COVID-19 on the ATO website before completing and submitting your tax return.
Changes to your employment
If your employment has changed or your hours have been reduced, it is likely you have overpaid tax and will receive a refund. This extra money is probably a welcome relief, so get your return in on time to get your money as soon as possible.
It is also important to note that anyone receiving the Job Keeper payment will need to declare this, as the payment count as income.
If you are able to make contributions to your superannuation and are yet to reach the $25,000 cap, doing so before 30 June is an option to reduce your tax liability, plus grow your retirement savings.
If you are an employee earning below $53,564 and are eligible, the Australian Government will match super contributions up to $500, meaning you can grow your super grow faster. If your spouse is a low-income earner, you can also make a spousal contribution and receive a tax offset.
Income protection insurance
If you are concerned about your income as a result of COVID-19, you may be reconsidering your income protection. But what you may not know is that personal income protection insurance can be tax deductible. You can even prepay your income protection for twelve months before 30 June and claim it on this yearís tax return.
Whatever your employment situation, itís important to start planning your tax before 30 June. For further advice on deductions and understanding your options, you can view all of Apt Wealthís tax tips here.
The information provided in this blog does not constitute ﬁnancial product advice. The information is of a general nature only and does not take into account your individual objectives, ﬁnancial situation or needs. It should not be used, relied upon, or treated as a substitute for speciﬁc professional advice. Apt Wealth Partners (AFSL and ACL 436121 ABN 49 159 583 847) and Apt Wealth Home Loans (powered by Smartline ACL 385325) recommends that you obtain professional advice before making any decision in relation to your particular requirements or circumstances.