Bluebird News

Work related expenses

To kick off let’s discuss general deductibility.  Often I get asked “can you please put in a standard claim for all these items?” The answer is no. There is no such thing as a standard claim amount. We will work through a number of work-related expense items and ways in which you can calculate and navigate your deductions without finding yourself in hot water.

For a work-related expense amount to be deductible, it must meet the following conditions:

1. It must be directly related to earning your income

2. You must have spent the money

3. You must be able to substantiate the expense

4. You must not have been reimbursed for the expense therefore you must be out of pocket

5. You can only claim the portion that is related to you earning your income

From an accounting and numbers perspective, the less you spend and the more you can get your employer to provide for work-related items, the better for you. Whilst the tax refund may not be what you anticipate, it means that you haven’t had to spend the money. Therefore, keeping a dollar is a better option, rather than spending a dollar to receive for example 34.5 cents back in your tax refund.

Where you do incur work-related expenses, your first priority is to identify the nexus between the work-related expense and how it assists you in earning your income. The ATO is very interested in exactly how the expense related to your work activity to earn an income. They currently monitor and data match all occupation codes against relevant expenses within the occupation code. This assists them in identifying incorrect claims. If you know that you use an item for work and it assists you in earning your income, yet your employer hasn’t stated that you are required to have it, safeguard your deduction by requesting a letter from your employer stating how it’s used in you earning an income.  Keep this in your records for 5 years from date of lodgement of your income tax return.

Clothing items:

There are 4 different claims within the clothing area, and they must meet specific requirements in order to be a valid tax deduction. Along with satisfying a claim, it can also mean you’re able to claim laundry or dry cleaning of these types of work-related clothing:

1. Occupation specific: these are clothing items specific to your occupation such as nurses scrubs or chefs check pants.

2. Protective clothing: these are items that provide protection against elements of carrying out your work, such as a hard hat, high vis vests and steel cap boots.

3. Compulsory uniform: this is for purchases of uniform that is specific to your job, as a general rule if you turned up to work in different clothing would you be sent home? Example being a fast-food chain uniform, or flight attendant uniform.

4. Non-compulsory uniform: this is a uniform that you don’t have to wear and have the choice to, however, the design must be registered with AusIndusty in order to make a claim.

A claim can’t be made for items that do not fit these categories, which includes where an employer advises you to wear black pants that can be purchased at a general clothing store, or items such as socks. 

Working from home

There are 3 methods for individuals to choose from when determining their claim for working from home:

1. Actual cost method

This is where you claim the actual expenses incurred. It involves keeping a similar record to determine the amount of time you work from home. We then calculate the actual decline in value of assets such as a bookshelf based on the receipt of purchase and work out the proportionate claim. Then we calculate receipts for: cleaning heating, cooling and lighting – you’ll need to work out the cost per unit, average unit per hour and total annual hours used for work-related purposes.

As an employee, you can only claim occupancy expenses if your employer doesn’t provide you with a workplace and you are therefore required to dedicate a portion of your income to your home office. Occupancy expenses include rent, mortgage interest, property insurance, land taxes or rates.

To calculate occupancy expenses, you add all expenses x the floor area dedicated to your home office x the percentage of the year it was used exclusively for work.

You can then claim:

• - mobile phone to the percentage it is work related
• - internet to the percentage it is work related
• - printing and stationary
• - computer consumables
• - computer depreciation

This method is the most scrutinised by the ATO and you’ll need to make sure your records are clear and accurate.

Go to ATO website for more information.

2. Fixed rate method

The fixed rate method is a standard rate of 52 cents per hour for hours worked from home. You need to have a dedicated workspace and the amount is standard to cover lighting, cooling and heating as well as depreciation on office furniture. Using this method you can still also claim:

• - mobile phone to the percentage it is work related
• - internet to the percentage it is work related
• - printing and stationary
• - computer consumables
• - computer depreciation

This allows for easy calculation of home office outgoings without complication or calculating your floor space and having to go through paid bills and maintain accurate records.

Go to ATO website for more information on the Fixed rate method.

3. Short cut method

The short cut method is a claim of 80 cents per hour worked from home. There are some general rules to this which include actually working from home and having a dedicated space to work from. This rate is what it says it is and is a “short cut”. This means the rate is inclusive of:

• - lighting, cooling and hearing
• - decline in value of office furniture and computer equipment
• - phone expenses
• - internet expenses
• - computer consumables
• - printing and stationery

The benefit is that you don’t need to keep receipts or records for the items listed above. On the other hand, by selecting this method you may reduce your entitlement to a higher deduction. This rate has only been introduced for the pandemic and to assist taxpayers in calculating home office expenses.

Go to ATO website for more information on the Short Cut Method.

Conclusion

The ATO allows you to self-assess and choose the best method for your circumstances. We recommend calculating all methods and then making a choice. As always, talk to us if you need any help.