This is one of the most popular deduction items that many people find useful. However, there are strict conditions imposed by the Australian Taxation Office that actually limit the availability of the amounts we can claim.
In this article, I will talk about the home office use by the employees. There are slightly different rules for the home-based businesses. They will be explained in another edition.
Generally, an employee who works at home and who does not have a dedicated work area will not be entitled to claim running expenses or their claim for running expenses will be minimal.
Occupancy expenses, such as rent or mortgage interest, are not allowed for employees anyway. So, we will just focus on running expenses.
If an employee works from home for some time in addition to his or her hours at the regular workplace, the costs incurred can be summarised as below:
- home office equipment, including computers, printers, telephones and furniture and furnishings. The employee can claim the
- full cost for items up to $300
- decline in value for items over $300
- heating, cooling and lighting
- the costs of repairs to your home office equipment, furniture and furnishings
- cleaning costs
- other running expenses including computer consumables (for example, printer paper and ink) and stationery.
In that respect, there are two ways to calculate the running expenses:
- Using the fixed rate method, that allows to claim 52 cents per hour, or
- Calculating the actual expenses.
Fixed Rate method is based on average energy costs and the value of common furniture items used in home business areas.
Instead of recording all of the actual expenses for heating, cooling, lighting and cleaning, the employees can claim a deduction of 52 cents for each hour they work from home.
To claim using this method, the taxpayer needs to keep records of the actual hours spent working at home for the year, or to keep a diary for a representative four-week period to show the usual pattern of working at home.
However, we need to separately work out all other working area expenses at home, such as:
- phone and internet expenses
- computer consumables and stationery
- decline in value on computers or other equipment.
The Actual Expenses method is based on calculating the real costs incurred and proportioned to the number of hours worked from home, or sometimes to the area of the dedicated work area against the whole area of the house. What needs to be done is
- keep a record of the number of actual hours of work from home for the year, or keep a diary for a representative four-week period to show the usual pattern of working at home
- work out the decline in value of depreciating assets by keeping receipts which show the amount spent on the assets and work out the percentage of the year that those depreciating assets were used exclusively for work. A deduction is available for the proportion of the decline in value that reflects the work-related use of the depreciating assets
- work out the cost of cleaning expenses by adding together the receipts and multiply it by the floor area of the dedicated work area (floor area of the dedicated work area divided by the whole area of the house as a percentage). The claim should be apportioned for any private use of the home office and any use that other family members make of the home office
- work out the cost of heating, cooling and lighting by working out the following:
- the cost per unit of power used - refer to the utility bill for this information
- the average units used per hour - this is the power consumption per kilowatt hour for each appliance, equipment or light used
- the total annual hours used for work-related purposes - refer to the record of hours worked or the diary for this information.
If this area is used by the other members of the household as well, it must also be taken into account and those expenses must be apportioned accordingly.
If there is no dedicated work area, the expenses for heating, cooling and electricity should be calculated by determining the actual cost of running each unit used per hour and multiplying that by the hours of working from home. The amount of the additional expense is generally small. This will particularly be so where there are other people using the area at the same time with the employee who works there. In those circumstances there is no additional cost for lighting, heating or cooling.
Because of all these complications, we do not recommend to claim a deduction for home office expenses if there is no designated area of work. In case there is one, we recommend to use Fixed Rate method to be on the safe side. Actual expenses method is always open for discussion and hard to prove the proportions, etc.
If you like to know more, please contact us.