Working From Home: Tax Deductions

Working from home? If you are your expenses are going to increase. Think electricity, phone usage, internet, heating, cooling, stationary, office hardware and cleaning.

With Covid-19 restrictions there’s a lot more people working from home. Waiting until the end of the financial year to figure out what deductions you can claim for working from home is too late. It needs to be done now.

The government allows three scenarios for claiming a tax deduction whilst working from home.

Working from home gives you the opportunity to claim a tax deduction

The 80 cent Rule

From 1 March to 30 June 2020, the taxation department has a special ruling due to Covid-19 and working from home.

The only requirement is you keep a log book of the hours worked at home and at tax time you can then claim 80 cents per hour as a tax deduction.

Under this method, you don’t need to keep any receipts or calculate portions of usage, or depreciation.

The 80 cent rule is the simplest way to claim your working from home tax deductions.

The 52 cent Rule

Under this rule you can claim a flat rate of 52 cents per hour to cover expenses such as heating, cooling, lighting, cleaning and the decline in value of furniture.

Using the 52 cents per hour rule, you only need to track the amount of hours worked and don’t need to keep receipts for the above expense areas.

The benefit of the 52 cents per hour rule is that you can also claim other work-related expenses. This is provided you have the documentation to support your claims.

The extra expenses you can claim as working from home tax deductions are a portion of your phone and internet bills, computer consumables and stationery, and the decline in value on computers or other equipment.

As an employee, you can’t claim a deduction for rent, mortgage interest, property insurance, land taxes or rates. Although there are exceptions such as your home office is your place of business.

However, if you are working temporarily at home due to Covid-19, it is not regarded as your place of business.

Actual Expenses

This is the most complicated method with stringent record keeping requirements, yet usually produces the larger deduction.

To use the actual expenses method you’ll need to be aware of the following:

  • keeping a record of the number of actual hours you work from home
  • keeping a diary for a representative four-week period to show your usual pattern of working at home
  • working out the decline in value of depreciating assets
  • having receipts showing the amount you spent on the assets
  • working out the percentage of the year you used those depreciating assets exclusively for work
  • working out the cost of your cleaning expenses by adding together your receipts and multiplying it by the floor area of your dedicated work area
  • calculating the cost of your heating, cooling and lighting by working out the cost per unit of power used and the average units used per hour
  • take into account if any other members of your household use the home office and, if so, apportion your expenses

In Summary

There are three methods for claiming a tax deduction for your working from home expenses.

They range from the simplified system of claiming 80 cents per hour without needing receipts; to the 52 cent per hour rule where you can claim extra work related deductions with receipts; and, the third option requiring the calculating of the actual costs of expenses.

What system of claiming a tax deduction for working from home would you choose? Please comment below.

Whilst you’re at home with greater expenses, are you getting the best deal on your electricity and gas bills? Head on over to Reduce Your Power Bill: Find Out How.

Disclaimer: I am not a personal finance adviser. Do your own research and contact a professional as needed. Tread your own path.

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