How to keep the right records to get your working from home tax deductions.
Working from home became more than just “flexible working conditions” in 2020. For so many businesses it became a necessity. So, naturally there is an increase in people looking for tax deductions for the extra expenses they incurred working from home during lockdown and beyond.
The ATO introduced a few new ways of calculating expenses to try and simplify the process during COVD-19 lockdowns. However, before you can even calculate your expenses, you need to make sure you’re keeping the right records the whole way through the financial year.
Leaving it until the very end (meaning May or June) creates a big, mad rush for you and for your accountant. And you might end up missing some key elements! So here is a quick and easy guide to tax deduction record-keeping for working from home expenses during the financial year.
Recording your hours worked from home
To apply for a tax deduction on your expenses, you must keep a record of the hours you have worked from home. This is obviously easiest to do on an “as you go” basis, rather than trying to go back and find all the information you need in June 2021.
This record could include any of the following:
- Your work timesheet; or
- A work roster; or
- Your diary or calendar; or
- Any similar document that shows the hours you worked.
If you use the other methods, you must also keep a record of the number of hours you worked from home, along with records of your expenses.
If you don’t already have a reliable method for recording keeping (such as an electronic timesheet, roster or calendar) you can use the ATO’s myDeductions feature to help with record-keeping, (more details below).
Expenses you can claim
If you work from home, you can claim a deduction for the additional expenses you incur.
These can include:
- The 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” such as printer paper, printer 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 claim the decline in value (depreciation) for items over $300.
Expenses you can’t claim
Unfortunately not everthing is tax deductible, even if you would normally have it provided in your office or physical workplace.
You can’t claim:
- The cost of coffee, tea, milk and other general household items.
- Items that your employer paid for, or reimbursed you for. You can’t claim the decline in value of items provided by your employer either.
- Costs related to children and their education. This includes setting them up for online learning, teaching them at home or buying equipment such as iPads and desks. We know lots of parents had to do this during lockdown on top of working from home, but unfortunately it cannot be claimed.
- Any 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 working from home expenses
Your accountant will use the best method for your individual situation.
This is all the more reason to be keeping accurate records as you go. To ensure you’re using the right method based on the dates you worked from home across the financial year.
Using the ATO’s myDeductions tool
You can use the myDeductions tool in the ATO app to keep track of your expenses and receipts throughout the year.
Employees can use myDeductions to keep records of work and general expenses and to make lodging your tax return easier. If you are not an employee, you can still record your general expenses, such as gifts and donations and the cost of managing your tax affairs.
Sole Traders can use the myDeductions tool to keep records of income and deductions.
You can use it to record:
- Expenses and deductions
- Vehicle trips
- Income (if you’re a sole trader)
- Photos of your invoices and receipts.
How to use myDeductions:
- Download the ATO app
- Select the myDeductions icon
- Choose whether you’d like to use the tool as an individual employee, as a sole trader, or both.
As with any tax advice – we urge you to speak directly with your accountant about what your individual circumstances mean for your tax!
If you’re looking for more advice about working from home, you might find some of the articles below very helpful!