COVID-related tax deductions explained

As with everything in 2020, your tax return may look very different this year.

COVID-related tax deductions explained

If you are one of the many people who were working from home for the first time at some stage during this pandemic, your tax return is going to look very different this year.

The government has made a number of changes to make claiming your work expenses a little bit easier this year, but you can still follow the usual rules if you prefer, and you may find that method delivers the most money back.

The government introduced the working from home tax deduction shortcut as tracking these expenses can present a challenge.

If you are filling in this year’s tax return, the shortcut method applies from 1 March 2020. However, it still applied up until 30 September 2020, so it is also important to remember it when filling in next year’s tax return.

In most cases, if you were working from home as an employee, there will be no capital gains tax (CGT) implications for your home.

Claiming a deduction
To claim a deduction for working from home you must have spent the money; the expense must be directly related to earning your income and you must have a record to prove it.

This means you can't claim a deduction for items provided by your employer, or if you have been reimbursed for the expense.

If you are not reimbursed by your employer, but receive an allowance from them to cover your expenses when you work from home, you must include the allowance as income in your tax return and then you can claim a deduction for the expenses you incur.

Expenses you can claim
If you work from home, you will be able to claim a deduction for the additional expenses you incur. These include:

  • electricity expenses associated with heating, cooling and lighting the area from which you are working and running items you are using for work
  • cleaning costs for a dedicated work area
  • phone and internet expenses
  • computer consumables (for example, printer paper and ink) and stationery
  • home office equipment, including computers, printers, phones, furniture and furnishings – you can claim either the full cost of items up to $300 or the decline in value for items over $300.

Expenses you can’t claim
If you are working from home, you can't claim:

  • the cost of coffee, tea, milk and other general household items your employer may otherwise have provided for you at work
  • items that you're reimbursed for, paid directly by your employer or the decline in value of items provided by your employer – for example, a laptop or a phone
  • time spent not working, such as time spent home schooling your children or your lunch break.

Employees generally can't claim occupancy expenses such as rent, mortgage interest, water and rates.

Calculating your expenses
There are three ways you can calculate your expenses. You can use the newly introduced shortcut method (80 cents per hour worked from home), the fixed rate method or the actual cost method.

You do not have to use the shortcut method. You can choose to use one of the existing methods to calculate your deduction.

You can use the method or methods that will give you the best outcome, as long as you meet the criteria and record keeping requirements for each method.

Shortcut method
For this year’s tax return you can claim a deduction of 80 cents for each hour you worked from home in the 2019–20 income year during the period 1 March to 30 June 2020 as long as you were working from home to fulfill your employment duties and not just carrying out minimal tasks such as occasionally checking emails or taking calls.

You also need to have incurred additional running expenses as a result of working from home.

The shortcut method doesn’t require you to have a dedicated work area, such as a private study.

The shortcut method covers all additional deductible running expenses, including:

  • electricity for lighting, cooling or heating and running electronic items used for work (for example, your computer), and gas heating expenses
  • the decline in value and repair of capital items, such as home office furniture and furnishings including capital items that cost less than $300
  • cleaning expenses
  • your phone costs, including the decline in value of the handset
  • your internet costs
  • computer consumables, such as printer ink and stationery
  • the decline in value of a computer, laptop or similar device.

You don't have to incur all these expenses to use the shortcut method, but you must have incurred additional running expenses in some of these categories when working from home.

If you use this method, you can't claim any other expenses for working from home for that period.

When you are calculating the number of hours you worked from home, you need to exclude any time you took a break from working, for example the time you spent to stop and eat your lunch.

If you use the shortcut method to claim a deduction in your 2019–20 tax return or 2020–21 tax return, include the amount at the other work-related expenses question in your tax return and include ‘COVID-hourly rate’ as the description.

Records you need to keep
You must keep a record of the number of hours you have worked from home. This could be a timesheet, roster, diary or similar document that sets out the hours that your worked.

Did you work from home last financial year? What method will you use for claiming your expenses?

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