Working from Home: Claiming your Tax Deduction
If you’re anything like me, it’s probably only just clicked – In Late June – that tax season is upon us. That’s mostly worked for me in the past, since it’s pretty simple jumping onto MyGov and checking that the details of my automatically uploaded T4’s are correct. In fact, up until this year I’ve thought of myself as a Tax wizard because of how easy it’s been… But I’ve never been entitled to a tax deduction for working from home before..
I’ve been doing some deep digging into the Australian Taxation Office, and what exactly I can get out of my 2022 return. So if you’re part of the WFH crew like me, sit down, sip away at your coffee (Which, no… isn’t tax deductible) and let me show you what you can and cannot get from your WFH tax return in 2022.
What can you Claim if you Work from Home in 2022?
Going into this, I was under the assumption that the ATO would have you jumping through fiery hoops just to get even a slight reduction on your tax return. But you know what they say about assuming…
Essentially, there’s 3 options. The ATO calls these the Shortcut Method, Fixed Rate Method and the Actual Cost Method. Respectively, I call them the Lazy Method, Not-So-Lazy Method, and the Organised-Adult Method. The fiery-hoop option is there if you want, in way of the Actual Cost Method, but we’ll get into that soon. For clarity and expediency, the Shortcut method was introduced during Covid as a more time-effective alternative to the Fixed Rate method. We will not be discussing the Fixed Rate method, as the Shortcut method seems to provide greater benefits. First things first, the Shortcut (AKA Lazy) method.
This is by far the most simple of the options for claiming your work from home expenses, and it’s definitely the one I’ll be using. The shortcut method is simple; do you know how many hours you worked from home? Well, then you can claim 80 cents for every hour you did. It’s as simple as that, so long as you have documentation to back it up.
While it is the most simple, you may not get the most back from this method. This method is for those of us who aren’t used to working remotely, who suddenly find themselves in that situation. As two out of five Australians work from home at least once a week now, there’s a chance you could be entitled to a reduction without even being aware of it. The shortcut method was introduced during Covid and covers all deductible running expenses for working from home. However, it cannot be used in unison with any other Work-related deductions.
Actual Cost Method
This is the method where you can get the most out of your tax return, however, as I’ve dubbed this the ‘Organised-Adult Method’, it’s definitely the one I won’t be using. At least for this year. The Actual Cost method requires a lot of documentation and time in order to determine the Actual Cost of reduction you are entitled to. Obviously, if your entire working arrangement is remote, you are using quite a few resources at home. The standard 80c/Hour rate given in the shortcut method might not give you the most accurate return, so this is the method for you. Obviously, you need to be able to prove that you actually work from home. In order to do this you’ll need to provide the ATO with either a record of the number of hours you work from home or a diary for a representative four-week period of work. This is the easy part. However, for everything else – you’ll need to do a bit more work. The Actual Cost Method can cover any of the following expenses;
Seems pretty simple, right?
Well this is where it can get a little confusing – as you need to work out, for each of these variables, how much of your time was spent using these resources in company time, versus personal time. For anything bill-related (Phone/Internet, Electricity etc), you must work out the percentage of your bill’s cost that was used while working. So for Electricity/Heating, you must determine the cost per unit of power, average units used per hour and total hours spent using for work-related purposes. That sentence is a bit of a mouthful, I know… For cleaning, you must work out the floor space your office encompasses, and then multiply it by the sum of your cleaning-related receipts for the year (no, I’m not joking). We’re now getting in to the fiery-hoop part if you couldn’t tell.
Tangible products like computer accessories/stationaries need proof of purchase, while anything over the value of $300 needs to be claimed as a depreciating asset. I’m not even going to attempt explaining their process for depreciating assets. If you want to learn about this, visit the ATO’s webpage dedicated to determining the decline in value of depreciating assets. They have a bunch of examples which should make it easier to understand.
The Actual Cost method is, by no surprise, the more hands-on and time consuming Tax reduction method. However, chances are – if you’re working from home 8 hours a day for a full year, you are well and truly entitled to more than 80c/Hour of work. Following this method can absolutely aid in providing you with most accurate tax return, and it’s definitely something I will be looking into next tax season.
What can't you Claim if you Work remotely in 2022?
What if you run your Small Business from home?
Speaking of tax, if you’re running your small business from home – you can actually be eligible for tax relief, according to the ATO. Speak with your accountant if this is you, as you may be missing out on some renumeration.
Updating your Insurer if you're working remotely:
We can’t get through the blog without mentioning insurance. While it may seem a little… Plug-ey, it’s actually incredible important to make sure you are updating your insurer every step of the way if your situation is changing. While transparency isn’t of the utmost importance to most insurance brokers out there, it is to us. You may be thinking this doesn’t apply to those of us who work our office jobs from home, but bare with me.
If you run a business, and that business happens to be ran from home – updating your insurer can help in reducing the chance of risk, and the chance of your insurer denying your claim completely. There’s different state, territory and local government regulations, which all need to be followed. These are separate from the rules and regulations you follow for your industry. Some local councils don’t even allow business to be ran from home, so make sure that’s not you.
If you have started running your business from home and haven’t updated your insurer – things will go wrong. It’s not a matter of if, but when.
Don't run off, though.
It’s not all scare tactics – working from home means that you probably spend much more time at home than you do out of the house (at least while working). Most companies wouldn’t jump at the opportunity to tell you this, but spending more time at home puts you in the unique position of being able to negotiate a better premium on your Home and Contents insurance. Spending more time at home means your risk profile may be lower, allowing you to potentiality to receive better rates. While not guaranteed, it’s certainly a nice bonus. Piggy backing off this, you might not be using your car anywhere near as much, as you’re working from home. You may also be able to get a reduced premium here too.
Long story short, there’s no real negatives to letting your insurer know about changing situations. Sure, your premium will increase, but since you may be able to negotiate a reduced premium, and you’ll still be covered for everything, it will end up benefitting you in the long run. Just imagine if a claim pops up and you haven’t updated your insurer, leading to not only your business insurance being voided, but your domestic insurance policies too. That’s gonna sting more than the $ you’ve saved by not telling us…