How to claim tax on working from home expenses: FULL WALKTHROUGH

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Want to know how to calculate and submit your working from home tax deductions? Foxie has it covered, from A to Z.

Around 41% of the Australian workforce spent at least one day per week working from home in the past year, with COVID19 lockdowns and travel restrictions severely impacting our regular work habits. This has meant a lot of adjustment for Australian workers, many kitchen tables have become impromptu desks and spare bedrooms turned into makeshift home offices. And while many of us have enjoyed being able to skip our commutes or do Zoom meetings in pyjama pants, we may not have realised the additional costs to running an office at home.

Luckily for us, the Australian Government has acknowledged this increased cost as a result of the pandemic, and made it a lot easier for us to claim home working expenses on our 2020-2021 tax returns through MyGov.

Getting Started

As the 30 of June 2021 has now come and gone, you should have access to your end of financial year income statement. Previously, your employer was required to share a copy of this document with you to submit along with your tax return; however now, pay summaries are sent directly to the ATO, and automatically linked with your return.

To check this, you’ll need to log in to your MyGov account, navigate to ‘Services’ and look for ‘Australian Tax Office’. If you’ve completed your tax return through MyGov before, the ATO should already be linked; if not, you can use your tax file number (TFN) to confirm your identity and link the service.

Once your ATO account is linked to MyGov, you should be able to click through to the ATO and view your income statement under Employment > Income Statements. Your income statement should state which employer issued it, and whether it is ‘Tax Ready’. If your income statement has an orange box beside it reading ‘Not Tax Ready’, it probably means the ATO needs a little more time to process the information submitted by your employer. The ATO says all income statements for this financial year should be ready by the end of July 2021. If it’s still unresolved after that, you may need to get in touch with your employer to make sure your information was submitted to the ATO correctly.

Start your tax return by navigating to the home page. There should be a box titled ‘For Action’, under which you should see ‘Income Tax 551 : July 2020 – June 2021 Tax Return’. Click ‘Prepare’.

If your income statement is marked as ‘Not Tax Ready’, you can still proceed with preparing your tax return, but you may want to wait until the income statement becomes ready before you submit it. If you submit your tax return before your income statement is ready, your refund amount may change after the fact, and you could incur a tax bill. However if you’re super confident that the information in your income statement is correct, then you should be able to proceed just fine. 

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Working From Home Deduction

Once you’re in, you’ll need to answer a few questions and confirm some existing personal information. All of this is pretty straightforward, and you shouldn’t need to prepare any documents or materials.

Once you reach part 4 ‘Prepare return’, you’ll want to navigate to ‘Deductions’ and add ‘Other work-related expenses’. Here is where you’ll be entering your claim amount.

Calculating hours

Before we can determine the amount of your working from home deduction, we’ll need to know how many hours you spent working from home between 1 July 2020 and 30 June 2021. If you worked from home full-time for the entirety of this period, this should be pretty easy to figure out – 52 weeks x 38 hours/per week = 1976 hours. From here, you’ll just need to subtract hours from days you took off sick, on holiday, personal leave etc.

If you weren’t working from home throughout the entirety of the previous financial year, you’ll need to gather your payslips for the weeks that you were. Your payslip should include your hours worked, and leave figures. Add all your hours together, and subtract sick leave, personal leave etc.

Calculating the deduction

There are three ways to calculate your working from home deduction, and the ATO says you are allowed to choose the method which maximises your return, so long as you have the appropriate documentation and the information you submit is accurate.

Shortcut method

This is by-far the easiest and most convenient method. It was introduced for the 2020-2021 financial year, to account for the enormous increase in Australians working from home due to COVID19 restrictions. All you’ll need to do is multiply your working hours by $0.8, and you’ll have your working from home deduction amount. E.g. If I worked 1862 hours from home between 1 July 2020 and 30 June 2021, my amount would be 1862h x $0.8 = $1490.

The only evidence you’ll need to have on file is some record of the hours you worked – this can be in the form of timesheets, diary records or rosters. You won’t need to submit any documents with your claim, but you should have them in case the ATO asks for them in the future.

If you decide to use the Shortcut method, you’ll need to enter ‘COVID-hourly rate’ in the description box of your ‘Other work-related expenses’ claim.

Fixed rate method

The fixed-rate method works similarly to the shortcut method in that it simply takes the hours worked and multiplies it by $0.52. The difference is there are a lot more requirements to meet in terms of documentation. If you’re only completing your 2020-2021 financial year tax return (and not any previous years’) then there isn’t really a reason to use this method over the shortcut method.

If you did work from home prior to July 1 2020 and you are submitting your 2019-2020 financial year tax return also, then you may need to use a combination of methods to determine your deduction amount. Visit the ATO to view the documentation and eligibility requirements for using the fixed-rate method.

Actual cost method

This is the most accurate and rigorous method of calculating your working from home expenses, equipment depreciation and deduction amount. Does it necessarily yield the highest amount you can claim on your tax return? The answer is: maybe. It really depends – do you use high value equipment for work that depreciates quickly? Are you required to buy lots of office consumables to complete your job from home?
Calculating the actual cost method is pretty complicated, and will require you to have full records of the hours you worked during the financial year, or a diary of hours worked over a four-week period which is representative of your typical work schedule. You’ll also need all receipts, bills and notes which account for your running expenses of working from home. Luckily, the ATO has a handy-dandy calculator to do the number crunching so you don’t have to – once you’ve reviewed all of the eligibility guidelines on the ATO’s website, and you’ve collected necessary documentation, head to the Home Office Expense Calculator.

How long will my tax return take?

The ATO says most electronically-submitted tax returns are processed within two weeks.

In terms of time completing the task – this will vary from person to person. But if your job is the only source of income you need to report, and you aren’t adding many other work expense deductions, the entire process should take around 20-30 minutes at the most through MyGov. 

If you’re a sole-trader, business owner or you earned income through other means such as capital gains or property investment, then you can probably expect to spend at least an hour on the entire process.

Further Reading:

Image credit: Nathana Rebouças on Unsplash

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