This article is originally published by Vogue.
The health-saving precautions we’ve had to swiftly adopt since word of the Covid-19 pandemic first reached our shores have certainly seen a number of knock-on effects impacting our lives on a wider scale past any immediate threats to our wellbeing.
Homeschooling is the new norm for those with school-aged children, virtually communicating with family and loved ones has replaced in-person reunions, virtual fitness guides are now our go-to for keeping our physical and mental health in check, and for those of us who have been fortunate enough to retain our jobs, working from home is an ongoing reality.
Of course, many have no doubt welcomed this revised workplace setting with open arms, the ability to replace public transport and costly rideshares with a few steps to the home office, and bought meals swapped out with something of the homemade variety has certainly smiled on our bank accounts.
But while commuting and other work-induced costs may no longer be an issue for some now that they’ve made the WFH transition, there are inevitably an array of other, once-unconsidered costs that come along with working from home, many of which go unnoticed, forgotten and rack up quite the costly charge on their own—many of which are actually eligible to claim come tax time.
The ability to maintain a steady income aside, this uncertain time can still leave many experiencing financial hardships, whether it be a drop in payable hours, the job loss of a partner or family member under the same roof, or even a lack of savings to cushion any income loss, so being able to gain back a bit of coin wherever possible at the end of the financial year has become increasingly important for most.
Here, Vogue enlists the help of financial adviser and author of On Your Own Two Feet, Steady Steps to Women’s Financial Independence, Helen Baker, to help you make the most of your tax return while working from home, whether it be guiding you through the different methods for claiming deductions, advice on seeking professional help to do so, and the costs you can claim that you never would have considered in the past (being that she is among the 1 per cent of financial planners who holds a master’s degree in the field, we’re taking details notes).
Would you say that women are inevitably more impacted by work from home expenses?
“Women tend to make sacrifices for their family such as working part-time or not pursuing the heights of the corporate ladder to be there for the children. Right now, with home-schooling and working, women will be very stretched. Women will definitely be impacted more financially because they earn less and therefore have less disposable income. Marry that, with the fact that the costs of working from home are a tax deduction NOT a tax refund or rebate, therefore they are still paying for a large percentage of these extra costs themselves.”
Should you engage an accountant to ensure you’re properly claiming back any applicable work from home expenses, or could someone manage on their own?
“I believe quality advice pays for itself—we often don’t know what we don’t know. An accountant’s advice should hopefully help you get more bang for your buck, ensure you don’t miss any deductions and inform you of what you need to keep in case of an audit. For example, there are three methods for deductions: one is a straightforward method of $0,80/hour, however, if you spend a lot on phone calls, or internet, or you haven’t considered other deductions such as depreciation which may be higher, you may be missing out. And the accountant’s advice is tax deductible. (For those who want to have a go themselves though, click here).
Has the ATO made allowances for additional expenses to be claimed due to a huge increase in people working from home?
“There doesn’t appear to be extra items that you can claim, only the simplicity of the method i.e. the shortcut method is $0.80/work hour which sounds more than the original of $0.52/hour, however, the $0.52/hour method allows you to charge on top of this for actual expenses such as phone usage, internet, computer consumables and stationery, plus the decline in value of a computer, laptop or similar device. They have however, relaxed the set-up to be eligible to claim (i.e. on the $0.80/hour method, you don’t have to have a set space for working from home, it can be the kitchen bench, the dining room table, the outdoor patio).
Prior to this increase in working from home, what work expenses could we traditionally claim back come tax time?
“You could always claim the same expenses (phone, internet, stationery, computer consumables) providing you met the criteria of having a dedicated work area, however the calculation was different—these are the “running costs”. You could also claim a portion of your ‘occupancy costs’ if you were working from home in a dedicated work area. ‘Occupancy costs’ do not appear to be covered under the Covid-19 legislation of the $0.80/hour.”
You recommend three different methods for claiming back these costs: the short cut method, the fixed rate method, or the actual cost method—could you briefly explain each method?
“The ‘shortcut method’ is the simplest. You are covering everything associated with your cost of working from home, in one simple per cents rate of $0.80. You do not have to think about other costs. The ‘fixed rate method’ is a combination of the $0.52 per hour rate, [plus] a breakdown of phone, internet and other expenses on top of that proportioned according to usage. The ‘actual method’, which is accounting for all expenses, separating personal and business use and allocating accordingly.”
Could you please run through what we can, and cannot, claim in regards to working from home expenses?
Here, Baker breaks down what we can claim back by the different methods outlined above.
Method 1: the Shortcut method.
“In the ‘shortcut method’, you can claim a flat $0.80/hour for all of your lighting, cooling, electricity, heating, the decline in value and repair of items such as home office furniture and furnishings, cleaning expenses, phone costs and decline in value of the handset, your internet costs, computer consumables such as printer ink, stationery, and the decline in value of a computer, laptop or similar device. You do not need a dedicated work area.”
Method 2: The Fixed-rate method
“Alternatively, you can use the ‘fixed-rate method’—this is $0.52 cents per hour for heating, cooling, lighting, cleaning and the decline in value of office furniture, plus the work-related portion of your actual costs of phone and internet expenses, computer consumables, stationery— this is where it differs from the $0.80/hour method because you can then charge another flat $50.00 in total for your phone for the year, or analyse your bill and allocate:
- $0.25 for work calls made from a landline
- $0.75 for work calls made from a mobile
- $0.10 for text messages sent from your mobile
- For internet, you can determine the percentage usage over a four-week period and allocate that
- Plus, the work-related portion of the decline in value of a computer, laptop or similar device.
Method 3: Actual expenses method
To calculate actual expenses if you have a dedicated work area, Baker recommends you do the following:
- “Keep a record of the number of actual hours you work from home for the year, or keep a diary for a representative four-week period to show your usual pattern of working at home. Work out the decline in value of depreciating assets by keeping receipts which show the amount you spent on the assets and work out the percentage of the year that you used those depreciating assets exclusively for work. You can claim a deduction for the proportion of the decline in value that reflects your work-related use of the depreciating assets.”
- “Work out the cost of your cleaning expenses by adding together your receipts and multiply it by the floor area of your dedicated work area (floor area of the dedicated work area divided by the whole area of the house as a percentage). Your claim should be apportioned for any private use of your home office and any use that other family members make of the home office.”
- “Work out the cost of your heating, cooling and lighting by working out the following the cost per unit of power used—refer to your utility bill for this information, i.e. the average units used per hour—this is the power consumption per kilowatt hour for each appliance, equipment or light used the total annual hours used for work-related purposes (refer to your record of hours worked or your diary for this information). You must also take into account the use of this area by other members of your household, if applicable and apportion your expenses accordingly.”
- Claim occupancy expenses. “Occupancy expenses include: rent, mortgage interest, property insurance, land taxes, [and] rates. Employees are generally not able to claim occupancy expenses—you can only claim the work-related proportion of your occupancy expenses in two very limited circumstances. [One, if] the space in the home is a place of business, and not suitable for domestic use (for example, a doctor or dentist surgery or a hairdresser studio in the home, no other work location is provided to an employee by an employer and the employee is required to dedicate part of their home to their employer’s business as an office)—you can claim the portion of these costs that relate to a clearly identified place of business. [Two], if you claim occupancy expenses, you don’t qualify for the capital gains tax (CGT) main residence exemption for the part of your home that you use for work. If you use your home as a place of business, there may be CGT implications when you sell it.
Are there any unexpected general household expenses those now working from home full-time could claim?
“They have accounted for almost everything in their list. Sanitiser is not listed, but is likely to be considered a part of cleaning or personal use. Maybe you need gloves if you have to go to the post office or drop items at a client or supplier’s residence. Depending on the method used, you may use more cleaning products than before, or buy special products such as wood polish if you bought a wooden desk for your new work from home space.
We have found for our team that they needed specific cables to enable the phone to be diverted from the office via their modem. Whilst you are likely to be claiming electricity, depending on your method maybe you claim the light bulbs?
Depreciation is one that people often don’t consider because it’s not a normal term we discuss over coffee, so depending on your method, ensure you think of all the items you are using—car expenses via a logbook if you are running errands, headsets, etc.”
Being that your business is branded as for women, by women, are there any specific tax deductions that you have found are specifically applicable to women working from home?
“There isn’t any more or any less for women. However, women are often being pulled in every direction as an employee, a home-school teacher, a wife, a mother, a chef, a cleaner/tidy-uperrer, looking out for parents and parents-in-law and even grandparents, so they may not be aware they can make the claim, or they feel like it’s just another job they have to do and just don’t have the energy. So, they may not keep track of the items/hours/usage and it could slip through the cracks.
Furthermore, this is a tax deduction, so you only get a portion of the money back, when perhaps you could talk to your employer about refunding you these costs themselves. Research indicates women are not good at asking for pay rises or what they are entitled to. This may also mean they fall short of what they could be entitled to.”
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