As part of its COVID-19 economic response, the ATO has recently released a new simplified (optional) short cut method to claim deductions for additional running expenses incurred by employees and business owners who are genuinely carrying out employment duties or running their business from home, during the period from 1 March 2020 to 30 June 2020 due to Covid-19.
Under the ATO's new temporary shortcut method, the ATO will allow individuals in these situations to claim a deduction for all running expenses incurred during the period 1 March 2020 to 30 June 2020, based on a rate of 80 cents for each hour. The hourly rate covers all additional running expenses, namely:
- electricity (lighting, cooling/heating and electronic items used for work, for example a computer) and gas (heating) expenses;
- the decline in value and repair of capital items such as home office furniture and furnishings;
- cleaning expenses;
- phone expenses including the decline in value of a phone handset;
- internet expenses;
- computer consumables;
- stationery; and
- the decline in value of a computer, laptop or similar device.
Importantly, there is no requirement to have a separate or dedicated area at home set aside for working (e.g., a private study), for the purposes of using the 80 cents per hour method.
The 80 cents per hour method is an optional and alternative method to claiming additional running expenses under the existing claim methods (refer below) and will only require minimal records to be kept (i.e., a record of the number of hours worked from home during this period).
Note that individuals still have the option of claiming their additional running expenses using the following existing claim methods, even during the period 1 March 2020 to 30 June 2020:
- the '52 cents per hour method' (which only covers heating, cooling, lighting, cleaning an depreciation of office furniture); and/or
- the 'actual method' – which involves analysing separate running costs associated with working from home and claiming the work-related portion of such costs.
Generally, expenses associated with a taxpayer's home are private in nature and do not qualify for a deduction. However, where part of a taxpayer's home is used for genuine work related activities or for business purposes, the deductions may be available for the following two categories of expenses:
- A portion of occupancy expenses (e.g., mortgage interest, rent, council rates and building insurance), but only where a taxpayer's home has the character of a 'place of business'.
- Additional running expenses (e.g., electricity, gas, cleaning and depreciation of office furniture and equipment), whether or not a taxpayer's home qualifies as a 'place of business'.
A deduction can only be claimed by a taxpayer in these circumstances for expenses associated with their home, where the relevant expense:
- has been incurred by the taxpayer (and not paid for by a third party – e.g., an employer);
- has a sufficient connection with the taxpayer's income-earning activities; and
- can be substantiated or verified (e.g., by providing written evidence of the expense and a record of the hours worked at home to verify the deduction portion of the expense).
If you would like any further information or assistance in regards to Home Office Expenses, please feel free to contact us on 1300 885 761.