Work from home expenses under scrutiny
The COVID pandemic resulted in many more Australians working from home throughout the tax year, however the ATO will scrutinise any work-related deductions that have not been reimbursed by an employer or your own business.
If you worked from home during lockdown and spent money on work related items that were not reimbursed by your business, you might be able to claim some of these expenses as a deduction – but not everything you purchase can be claimed.
Under the spotlight: methods for claiming work-related expenses
The ATO has stated that it is looking very closely at work related deductions that are being claimed.
If you are claiming your expenses, there are three methods you can use:
- An 80 cents per hour short cut method (you will need to have evidence of hours worked like a timesheet or diary)
- The 52 cents per hour method (which excludes phone, internet, or the decline in value of equipment which are all claimed separately), or
- The actual expenses method.
The ATO is particularly interested in those using the 'actual expenses' method. To be able to claim a work related expense, it needs to be directly related to the work you do and how you earn your income.
The ATO has highlighted four ineligible expenses that are being claimed:
- Personal expenses such as coffee, tea and toilet paper
- Expenses related to a child's education, such as online learning courses or laptops
- Claiming large expenses up-front (instead of claiming depreciation for assets), and
- Occupancy expenses such as rent, mortgage interest, property insurance, and land taxes and rates, that cannot generally be claimed by employees working from home.
A case study: How the ATO might crack down on work-related deductions
A recent case before the AAT shows how determined the ATO is to crackdown on work related deductions being claimed where there is not a satisfactory nexus between the expense being claimed and the taxpayer's work.
In this case, the taxpayer had claimed car and clothing expenses, and home internet and mobile phone costs. The ATO conceded the car costs but on a reduced deduction. When it came to clothing expenses the ATO conceded that a deduction could be claimed for gloves and a beanie on the basis that the taxpayer worked in cold conditions and that these were protective clothing needed for the job. However, the AAT refused to allow a deduction for the cost of a pair of socks on the basis that they were not protective in nature in their own right.
Yes, it really does get this detailed.
The taxpayer had also claimed 100% of his home internet expenses but the ATO reviewed this claim and reduced the deductible amount to $50 - a record of the family's home internet usage demonstrated the internet was used to browse Facebook amongst other non-work related sites.
One of the other issues to come out of this case was the importance of record keeping. If you are going to claim work related expenses, then ensure you have the records to prove your claim.
Get your accountant to check your deductions
Given the scrutiny the ATO is intending to apply, we strongly suggest sense-checking your deductions with your accountant to keep you on the right side of claiming work related expenses. Contact us on 02 9957 4033 for more information.
This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.