Tax deductions for working from home?

At the start of last year, who could have imagined the incredible upheaval of the modern working environment. With the looming pandemic, the majority of professionals fled their offices and started the great remote working experiment.

Employers are now starting to realise the significant morale boost that a flexible work environment provides, as well as how overblown the downsides were. Remote working seems to be here to stay – according to the ABS, before March 2020, only 24% of people worked from home at least one day a week. Now, as of February 2021, that number has skyrocketed to 41%.

This trend is not limited to permanent workers. In our recent contingent worker engagement survey, across our base of nearly 5,000 contractors, 88.3% indicated that they work remotely either all or some of the time. With only 11.8% working onsite all the time, it’s clear that the majority of contractors have moved to the home office.

We’ve extensively covered remote working in a number of blog posts, but in this blog article we’re specially looking at the tax benefits of remote working for contractors, and how you can get working from home tax relief.

What you can claim

With many permanent and contractor workers now working at least some of their time in the home, there’s the potential to get significantly more back when you submit your tax declaration. Essentially, if it’s related to you earning an income, you may be eligible to claim. Examples include:

  • Electricity bills.
  • Internet and phone bills.
  • Depreciation of equipment you own, such as phone and laptop.
  • Stationery, ink, notepads and other small items.

And if you have a dedicated home office (i.e., not just your kitchen table!), you’ll be able to claim depreciation of furniture, fittings and cleaning. Otherwise, you’ll only be able to claim for the hours when you exclusively used that area for work. If your home is your primary place of business (as is the case for many of our independent contractors) you’ll also be able to claim occupancy expenses – which may include rent or mortgage interest.

What you can’t claim

You’ll be surprise what people try to claim on their tax return! You won’t be able to get any tax deductions from:

  • Food, coffee or tea.
  • Electronics that are owned by your employer.
  • Toilet paper.
  • Very expenses stationery, like an $800 pen.
  • Expenses related to schooling children at home.

Even if you’re primarily working from home, if you have an office elsewhere, you won’t be able to claim occupancy expenses.

How to get working from home tax relief

There are a number of ways to calculate your tax deductions after working from home during COVID-19. We’ve outlined the three main ones below:

Because of the dramatic increase in remote workers during the pandemic, the ATO has allowed people to use a shortcut method for claims.

 

Use the shortcut method

Rather than claiming for individual items, this method allows you to claim 80 cents for each hour worked from March until June – regardless of whether you have a separate working space or not.

This method is by far the simplest way to submit a working from home claim, and has been extended until the end of the financial year, 2021.

Use the fixed rate method

This method allows you to claim 52 cents per hour, as well as a number of individual expenses, including:

  • Internet and phone bills related to work.
  • Depreciation of technology.
  • To use this method, you’ll need to have a dedicated work area. If you do, this option will likely get you a higher tax deduction than the shortcut method.

Use the actual cost method

This method is by far the most work, and involves listing each individual business expense. For example, you’ll need to work out how much energy you used by the kilowatt, and determine the hours for your phone and internet bill.

However, if you have bought large items like furniture or equipment for your office, it may get you a bigger tax deduction than the other two methods. Just make sure you’re keeping meticulous records!

As one of the world’s top suppliers of contingent worker management solutions, CXC is perfectly positioned to optimise all elements of your contingent workforce strategy. With operations in more than 50 countries across 5 continents, and with decades of experience, we can assist with every aspect of your program.

If you would like to find out more about how we can help with your contingent workforce solutions please contact us here.

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