Lodging a tax return can seem like one of those tedious tasks in life that you may want to delay, but in the 2019 – 2020 financial year it may be best to tackle this paperwork sooner rather than later.
The final quarter of the last fiscal year saw many individuals working from home, incurring overheads that would normally be the responsibility of their employer. Many freelancers, whose principal place of business is their home, would be familiar with eligible deductions, however, a new method has been introduced which you may find helpful. This article will give you an overview of the claimable and non-claimable expenses for self-employed individuals operating as contractors and employees working from home.
The types of expenses you can claim while working from home will vary depending on whether you are an employee or a contractor (sole trader). A contractor can operate under a partnership or trust but for the purposes of this article the focus is on the sole trader. The Australian Taxation Office (ATO) has a handy decision tool to help you determine whether you are an employee or contractor here.
Working from home as an employee
An employee is someone who is paid for their time (hourly/per activity/commission), cannot subcontract or delegate their work, and works within, not independently of, a business. The business provides all, or most of, the equipment required for an employee to complete their work and is legally responsible for the work done by the employee. Apprentices, trainees, labourers, and trade assistants are always considered employees for taxation purposes.
Expenses you can claim as an employee
- electricity expenses such as heating, cooling, lighting your work area, and electrical power for items used for your work
- cleaning costs for your work area
- phone and internet expenses related to your profession
- computer consumables and stationery
- home office equipment such as computers, printers, phones, office furniture, furnishings of which you can claim either the full cost of each item up to $300, or the decline in value for items exceeding $300
- professional development, education, and training
- professional membership and union fees
Expenses you cannot claim as an employee
- tea, coffee, milk, and general household items an employer may otherwise have provided
- costs related to your children and their education (during remote/online learning)
- items you will be reimbursed for, paid by your employer such as your work laptop or work phone
- idle time where you are not working such as your lunch break or assisting your children with remote/online learning
Running a business as a sole trader
A sole trader is a type of contractor and small business operator who is paid based on a quote they’ve provided for their work (hourly/per activity). They have an Australian Business Number (ABN) and invoice their clients accordingly. They can subcontract or delegate their work, and work independently as per their client’s terms. Sole traders provide all, or most of, the equipment required for their work and solely bear the legal responsibility for it. Many sole traders use their home as their main office, workshop, or consulting room. As the home is used for both private and business activities, you can only claim the portion of expenses pertaining to your business.
Expenses you can claim as a sole trader
- occupancy expenses such as rent, mortgage interest, water rates, land taxes and house insurance premiums
- running expenses such as electricity and cleaning
- decline in value and repair costs on depreciating assets such as furniture, furnishings, and equipment
- phone and internet expenses including the decline in value of the handset
- marketing and advertising costs
- professional development, education, and training
- accountant and bookkeeping fees
- professional membership and union fees
- superannuation contributions
Expenses you cannot claim as a sole trader
- entertainment
- costs related to private or domestic expenses
- income gained from a hobby
- fines
The Shortcut Method
This is a new method to use between March 2020 – September 2020. It may help you calculate your deductions and is designed to make things simple. There are alternative methods to consider and you need to decide which method suits you best. More information about the shortcut method can be found here.
To make it easier for people to claim deductions for working from home due to COVID-19, we are accepting a temporary shortcut method for calculating home office expenses from 1 March 2020 until 30 September 2020. This allows you to claim a rate of 80 cents per hour for all additional running expenses.
– Australian Taxation Office
The ATO has a convenient frequently asked questions page for individuals here.
The advice in this article is general and by no means exhaustive. It does not take into account your personal circumstances. Please consult a financial professional if you have further questions. For information about the deductions other legal entities can claim, please visit the Australian Taxation Office’s website.
