ATO Announces New Simplified Calculation Method for Claiming Working from Home Deductions

Thursday 9 April 2020 @ 11.37 a.m. | Legal Research | Taxation

The Australian Taxation Office (“ATO”) has announced in a Media Release that business owners and employees who are now working from home because of the COVID-19 outbreak, will have access to a simplified way for claiming tax deductions, under a new “working from home shortcut”.

The New Arrangements

Under the new arrangements (which are optional), taxpayers can claim a rate of 80 cents per hour for all their running expenses, rather than needing to calculate costs for specific running expenses.

Also, multiple people living in the same house can now claim this new rate. In addition, the requirement to have a “dedicated work from home area” have also been removed. The new arrangements will also require the taxpayer to keep a record of the number of hours worked from home as evidence when making a claim.

The ATO Media Release indicates taxpayers making claims for working from home expenses prior to 1 March 2020 “should be calculated using the existing approaches and are subject to the existing requirements”.

The Existing Arrangements

Currently, under the existing arrangements, individuals can claim a rate of 52 cents per work hour for heating, cooling, lighting, cleaning and the decline in value of office furniture. They are also able to make a claim for the work-related portion of their phone and internet expenses, computer consumables, stationery, and the depreciation in value of a computer, laptop or similar device.

Comment from the ATO

ATO Assistant Commissioner Karen Foat, said the new “shortcut method” will make it easier for those who are working from home for the first time:

“The shortcut method provides a rate of 80 cents per hour and will only require you to keep a record of the number of hours worked from home. This recognises that many taxpayers are working from home for the first time and makes claiming a deduction much easier. If you choose to use this shortcut method, all you need to do is keep a record of the hours you worked from home as evidence of your claim.”

Claiming for the Relevant Period

According to the ATO, there are three ways that you can choose to calculate your additional expenses for the 1 March 2020–30 June 2020 period:

claim a rate of 80 cents per work hour for all additional running expenses;
claim a rate of 52 cents per work hour for heating, cooling, lighting, cleaning and the decline in value of office furniture, plus calculate the work-related portion of your phone and internet expenses, computer consumables, stationery and the decline in value of a computer, laptop or similar device; or
claim the actual work-related portion of all your running expenses, which you need to calculate on a reasonable basis.

Ms Foat said that if the Federal Government announces a prolonged lockdown extending into the next financial year, the ATO is likely to extend the new claiming method:

"We can't predict the future ... but if people are still being encouraged to work at home by the Government then we would extend it into the new financial year."

Reaction and Comment to the ATO Announcement

Paul Meissner, 5ways Group Director and Accountant told ABC News while he applauded the ATO's efforts at simplifying claims, taxpayers should still look at all their claim options to avoid paying more tax than they have to. Mr Meissner said for people paying $80 to $100 per month for home internet plus their phone and looking to claim any extra items such as printer or scanner, "using the shortcut could leave them worse off":

“The 80c shortcut includes some additional items that if claimed separately could easily result in more deductions. If you are now doing 40 hours per week work from home, the extra shortcut claim is only $40 per month. If you consider that this $40 includes your internet, phone, stationery and depreciation on any extra equipment you bought for your home office, your claim can easily add up to more using other methods.”

Mark Chapman from H&R Block also told ABC News:

"… as a general rule, taxpayers are better off claiming actual costs rather than using any of the ATO's flat rate allowances, including this new 80 cents [per hour] rate. If I work 150 hours a month — which are fairly standard full-time hours — from home, my claim will be $120 for that month."

Mr Chapman also acknowledged the ATO's flat rate allowance was "easy to use, and some taxpayers may opt for simplicity over a bigger deduction".

Hayley Lock, Tax Partner at KPMG said to ABC News that the ATO shortcut approach was "pragmatic", commenting:

"It does not require extensive record keeping and is simple to calculate."

Ms Lock said the question taxpayers needed to answer is, “how much time do you have and how good at record keeping are you”, she commented further “… If the answer is not a lot and not great [at record keeping], the ATO shortcut method sounds like a good option.”

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