Hands up who found themselves doing a work from home stint in the first half of 2020!
There were a lot of us. As a consequence, the ATO brought in a new simpler method to claim work at home expenses. They called it the ‘Shortcut’ method.
So how does this shortcut method differ from the existing ‘cents per hour’ method of claiming work from home running expenses, and are you better off using this new method or sticking with the old one?
(There is an ‘actual expenses’ method for claiming work at home tax deductions but that can get pretty complicated, so for the purpose of this article, we’ll just explore the two methods most people are likely to use.)
The standard fixed rate method works like this: You claim 52c for each hour that you work at home. This covers running expenses of your home office area. You can also claim a percentage of your internet expenses and mobile phone expenses, if you need to use your personal phone for work related tasks.
The new shortcut method means you simply claim 80c per hour for every hour that you work at home.
- March 1 to June 30, 2020, for 2019-20 tax returns; and
- July 1 to June 30, 2021, for 2020-21 tax returns.
But is the shortcut method better for you or the ATO?
The increased hourly rate of the shortcut method looks great on the surface but it might not be the best option for your circumstances. To find out which one is best for you, you need to start with a few sums!
This is easier to explain if we look at a couple of examples:
Emma is a graphic designer who worked at home for 38 hours a week at home for few months. She recorded her phone and internet usage for one month and worked out that 50% of her mobile phone use is work related and internet is 60%.
Fixed rate method:
- 38 hours per week x 52c x 16 weeks (March – June) = S316.16
- Emma could claim 50% of her $99 monthly phone bill x 4 months = S198
- Emma could claim 60% of her S80 monthly internet bill x 4 months = S192
- The total work from home expenses Emma can claim for this period is = $706.16
- With this method, Emma could claim 38 hours per week x 80c x 16 weeks = $486.40
But that’s all! Phone and internet expenses are included in the 80c per hour rate of the shortcut method so Emma can’t add these on.
Choosing the standard running expenses method of 52c an hour plus her phone and internet costs separately for her that four month work at home period, Emma could claim S219.76 more than if you used the new shortcut method..
Peter is a consultant who also worked full time at home instead of the office for the same period. Unlike Emma, his company provide him with a company mobile phone. They don’t pay his internet costs though and he splits those with his house mate. Because he shares the internet, he can only claim 50% of his total internet use for working at home.
Fixed rate method:
Peter could claim 38 hours per week x 52c x 16 weeks = $316.16
Peter’s monthly Internet bill is $80 a month, split 50/50 with his housemate. Peter’s share of the bill is S40 and so he could claim 50% of that amount for 4 months = $80
Peter’s total work from home claim = $396.16
Peter can claim 38 hours per week x 80c x 16 weeks = $486.40
Peter can’t claim his internet with this method as it’s included in the 80c per hour rate.
Peter’s work from home deduction claim would be $90.24 higher by using the new Shortcut method.
So, you see, it really is worth looking at the figures before you decide which method to choose. It may be easier to just opt for the shortcut method to claim your work from home tax deductions but you may find yourself out of pocket by quite a lot of money.
Still not sure which method is best for you?
No problem, just get in touch with Etax Local and one of our friendly team will work it all out for you, then incorporate the maximum allowable claim into your tax return this year.