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Working from Home Deductions: The COVID-19 Shortcut Method

Not only has COVID-19 changed the way we socialise and live life day-to-day, the working from home landscape has shifted significantly. What used to be a flexible working arrangement predominantly offered by employers to allow staff to do things like look after children, reduce travel or improve work-life balance, has now evolved into something that a vast majority of industries have had to accommodate. Working remotely means different things for different people, but those who started working from home as a result of COVID-19 no doubt saw some increase in their household expenditure. Those impacted are now able to take advantage of the Australian Taxation Office (ATO)’s new “Shortcut” method for calculating eligible tax deductions for their 2019/20 tax return.

Have you been working from home during the pandemic? If so, read on to find out what the shortcut method is, what you can claim, and what you cannot claim.

What is the Shortcut Method?

The shortcut method is the ATO’s new way of calculating deductions that taxpayers can claim on their return which offers a simpler alternative to the existing fixed-rate and actual cost methods. Note that the period you can use the shortcut method for in relation to your 2019/20 tax return is from 1 March to 30 June 2020. It is also worth considering that you do not have to use this new method, as the aforementioned fixed-rate and actual cost methods are still available. At the end of the day, use whichever gives you the most positive tax outcome to legally maximise your refund and minimise your obligations.

Using the shortcut method, you can claim a deduction of 80 cents per hour on your 2019/20 tax return, for each hour you worked from home between 1 March and 30 June. In order to be eligible for this you must have been working from home in order to carry out your normal occupational activities (e.g. working your normal 9-5, not just monitoring the occasional email from the couch); and working from home must have cost you more in running expenses than would have otherwise been the case.

You can calculate the working from home deduction on your 2019/20 tax return via the shortcut method by simply multiplying the total hours worked from home between 1 March and 30 June 2020 by 80 cents. For example, if you worked 40 hours a week for 5 weeks, you would multiply the total number of hours (200) by 80 cents, giving you a $160 deduction.

What Can You Claim?

If you’ve incurred additional expenses as a result of working from home, you can claim the following:

• Heating, cooling and lighting expense for the work-related area of your home;
• Cleaning costs for the work area
• Phone and internet expenses
• Stationery and computer consumables (paper, toner etc.)
• Home office equipment e.g. laptop, copier, phone, desk and chair
  • You can claim either the full cost of the item up to the value of $300; or the decline in the items’ value if the purchase price exceeds $300

What Can You NOT Claim?

As is often the case with ATO, there is a limit to what you are able to claim. For the purposes of working from home during COVID, you cannot claim a deduction for the following:

• Household goods like tea, coffee etc. that your employer would usually provide for you at your normal place of work
• Children’s education expenses e.g. equipment, home schooling, setup etc.
• Expenses reimbursed or paid for by your employer (or the decline in value of employer-provided equipment)
• Time spent on activities other than work e.g. breaks, home schooling
• Also, you generally cannot claim occupancy expenses e.g. rates, water bill, rent

How MP+ Can Help

Getting your head around the different rules when it comes to claiming deductions is something most people don’t want to worry about. As tax time is upon us and you look to organise your 2019/20 tax return, we’ll help you minimise your tax obligations, maximise your deductions and prepare and lodge your return on your behalf – easy! Get in touch with us via our website or on 08 9301 2200 today.

written by:

Jayne Turner

Bringing several decades of experience in the tax and accounting industry, over 20 of those with McKinley Plowman, Jayne is our resident personal tax guru. Her clients, many of whom have been with her throughout her time at MP+, continue to enjoy the benefits of Jayne's thorough and proactive approach to their tax affairs.