Every year when tax-time rolls around, people are always wishing that they had planned more efficiently to maximise their tax returns. This financial year has been very different from previous due to all the changes around employment throughout the pandemic. Due to all the restrictions, many employees have had to work from home as an alternative. Because of this, The Australian Tax Office has updated the home-office deduction rates to better support the employees that have had to use their own homes as offices this financial year.
There are two different methods which both can positively impact your tax return if utilized efficiently. It’s beneficial to keep a home-office log book whichever method you use. They would be the Shortcut Method and the Fixed Rate Method.
This method simplifies how you would calculate your deduction for working from home. Through this financial year, using this method you may claim 80 cents per hour for each hour you have worked from home. While this does not sound like a lot, it can make a significant deduction over time, especially if you are working from home full time. This method covers all your working from home expenses such as Phone expenses, internet expenses, the decline in value of equipment and furniture and your electricity. By using the Shortcut Method, you cannot claim any other expenses for working at home. An example for this method could be ‘Phil’, he works 38 hours a week and only had to work one month utilising his home office for the year. To form the deduction, we would multiply the 38 hours by 4 weeks to get 152, then multiply 152 by 0.80 = $121.60.
By using the Shortcut Method, Phil will now be allowed to claim an additional $121.60 deduction.
Fixed Rate Method
While Shortcut Method accounts for all home office expenses in the 80 cents per hour, Fixed Rate Method does not. Using the fixed rate method, you must keep a logbook of four weeks to show your regular work-at-home pattern. This will allow you to show what work-related use percentage you have for all your bills. For instance, you work out that your internet is being used 25% for work related usage, you can now claim 25% of your internet bill as a work-related deduction. This can also be utilised for phone expenses, computer consumables and the decline in value of equipment. An example of this would be ‘Sandra’.
Sandra understands that she uses her internet and mobile 25% of the time for work related purposes. Due to this, 25% of her monthly internet and mobile bill are now deductible. If her mobile & Internet bill comes to the total of $160 a month, $40 of that is now deductible for the month she worked at home. Using this method, if she worked 152 hours like Phil at 52 cents an hour (the reduced cents per hour rate), she would have $79.04, with her additional $40 deduction she now has a total deduction of $119.04.
There are pros and cons to both methods, so understanding which one will be the most beneficial to your tax return is important. Visit the travel expenses section of the ATO website for more information.