Working From Home - The New 80 Cents Per Hour Method
In response to COVID-19 and the fact that so many taxpayers are now having to work from home, the ATO announced a temporary simplified ‘short cut’ method to make it easier for you to claim tax deductions for additional running expenses incurred as a result of working from home.
The ATO has said that they will allow individuals to claim a tax deduction for all running expenses incurred during the period 1 March 2020 to 30 June 2022, based on a rate of 80 cents per hour where you’re carrying out genuine work duties from home. This is, essentially, an alternative method to claiming home running expenses under existing methods, which we’ve outlined in our article here, and also in Episode 15 of the Small Business All Figured Out podcast.
In Episode 15.1 of the Small Business All Figured Out podcast, Corinne and Sheryl outline the ATO’s simplified ‘80 cents per hour’ method of claiming home office expenses in your 2020, 2021 and 2022 tax returns.
What does the 80 cents per hour method cover?
The 80 cents per hour method is designed to cover all tax deductible running expenses associated with working from home incurred only between 1 March 2020 to 30 June 2022. The expenses that it covers is much wider than the standard 52 cents per hour method.
Included in the 80 cents per hour method is:
- Electricity expenses associated with heating, cooling and lighting the area at home which is being used for work.
- Cleaning costs (for a dedicated work area)
- Phone and internet expenses.
- Computer consumables (e.g. printer paper and ink) and stationery.
- Depreciation of home office furniture and furnishings (e.g. an office desk and a chair).
- Depreciation of home office equipment (e.g. a computer and a printer).
What are the benefits of using the 80 cents per hour method?
A question that many taxpayers will have when it comes to claiming a tax deduction for home office expenses in their tax return, under this method, will be: What are the benefits of using this method compared with the other options available?
We’ve identified that there are 3 main benefits, as follows:
- Firstly, there is no requirement to have a separate or dedicated area at home set aside for working (e.g. a private study);
- Secondly, multiple people living in the same house could claim under this method (e.g. a couple living together could each individually claim running expenses they have incurred while genuinely working from home, based on the 80 cents per hour method); and
- Lastly, an individual will only be required to keep a record of the number of hours worked from home as a result of the Coronavirus, during the above period. This record can include time sheets, diary entries/notes or even rosters.
The 80 cents per hour method does eliminate the amount of record keeping required, compared with using the other available methods, as it is simply 80 cents multiplied by the number of hours you have genuinely worked from home in the period 1st March 2020 to 30th June 2022.
What are the disadvantages of using the 80 cents per hour method?
The 80 cents per hour method actually prevents you from separately claiming the following costs which are ordinarily tax deductible in addition to the ‘52 cents per hour method’ and ‘actual expense method’:
- Phone and internet connection costs and your associated work related usage
- Computer consumables and stationery items such as note pads, pens, printer ink, printer paper, USB drives, etc
- Depreciation on office equipment such as new laptop computers, printers, phones, computer screens, office furniture that you may have purchased during this period will not be separately depreciable. It is also our understanding that items that you may have already been depreciating will no longer be deductible from 1 March 2020 to 30 June 2022 under this method.
When you analyse the costs of the items that are deemed to be included in the 80 cents per hour claim, this could actually result in a less tax effective claim compared a home office claim calculated using the other methods
We recommend that you discuss the tax deductibility of home office expenses with our Melton Tax Agents at your tax return appointment to really understand which method will work best for you.