The Covid 19 pandemic has thrown up challenges for employees and employers alike. One massive shift in the normal work environment has been the forced shift to working from home (WFH).
This change has been recognised by the ATO and they have issued guidance recognising this shift to WFH and as a result they have issued new guidance for claiming work related home office expenses.
COVID – Hourly Rate
To make it easier for taxpayers to claim the appropriate deduction the ATO has allowed for a singular 80c per hour flat rate for home office claims. This will replace the current fixed rate method of 52c per hour with phone and internet claimed separately.
The period of eligibility is 01 March 2020 – 30 June 2020. All taxpayers will need to do is to prove, either through diary, time sheets or applicable record, the amount of actual hours spent working from home.
Sounds easy right?
Devil in the Detail
While from the outset this may seem the most tax effective way of claiming your direct expenses you may be selling yourself a touch short. If you needed to upgrade your internet data plan, pay for zoom accounts or spend more time making calls you may be better off calculating the total allowable deductions, comparing them to the Covid- hourly rate and deciding which is the better option.
Whichever method you choose, make sure you seek the advice of a tax professional that can help you make the best position for your individual situation.
Tommy works on the docs as the marketing manager. As a result of the Covid-19 Tommy began working from home on the 10th March 2020 for 8 hours a day.
To do so Tommy bought a desk, new laptop and printer. His use of the internet and electricity has also increased due to working from home.
Tommy now has two choices for claiming these allowable deductions.
Option 1. Tommy can use the Covid 19 – Hourly rate and claim a flat 80c per hour rate for all his expenses. All he would need to do is calculate his actual hours spent WFH.
Let us say Tommy spent 8 hrs a day for 30 days WFH. His calculation would be:
8 hrs x 30 days = 240 x .80c = $ 192 allowable deduction.
Option 2. Tommy can elect to use the existing WFH allowable deductions. He can use a rate of 52c per hour for his utilities and desk. He can depreciate his new laptop and claim the work percentage for his upgraded internet and telephone expenses.
Let’s use the same example as above of Tommy WFH for 30 days.
- Part One: 8 hrs x 30 days = 240 x 0.52c = $ 125
He also can claim the business use portion of his internet and telephone. In this case Tommy estimates he uses these facilities 15% for work and pays $50 a month for each service.
- Part Two: It would calculate as ($50x 2) x 3 months WFM x 15% = $45
Tommy can also depreciate a portion of his computer. To calculate his computer cost $1000.
- Part Three: ($1000/12) x 3 ( give him the portion of the year he was WFH) x depreciation rate e.g 20%
= $ 250 x 20% = $ 50
So, Tommy’s total allowable deduction is A=B+C = $ 125+45+50 = $ 220 Allowable deduction.
So, as you can see comparing the two that Tommy would receive a greater allowable deduction by using Option Two.
While this is true for Tommy in this case it may not work out to be true in all cases. If you’re not entirely confident in claiming this on your own I recommend seeking professional advice.
One final piece of information. If you are going to claim using Option One you will need to have your tax return finalised and lodged prior to September 30 2020.
For more information or advice please feel free to contact me at firstname.lastname@example.org.
About the Author:
Darren Leyds is the Principle and Director of Undaunted Accountants and Business Advisory a proudly veteran owned business.
*This article is for information purposes only and shouldn’t replace the advice of a tax professional familiar with your individual situation.