Bluebird News

Welcome! It’s May, and that means we are deep down in tax lodgements, JobKeeper administration, advice and planning for 2020 tax returns.

Today I’ll be sharing some tips on how to make the most out of home office claims and how to manage your old records.

For the last 6 to 8 weeks we’ve been forced to adapt to a new world, to embrace technology to assist in operating and working in a virtual office. New practices and techniques developed during this time will change the way businesses operate in the future and in some ways make them more efficient and effective in time management. Sure working from home has its perks, no commuting to and from work, comfortable soft clothing, and gourmet home-cooked lunches (for some). It also has its challenges – especially working at home and home-schooling children at the same time, and working from home with your partner also working from home.

I’m loving seeing all the different home office backdrops on the news - libraries, studies, bedrooms, kitchens with old boxes, suitcases, kids toys, and sports posters. And seeing the occasional little kid, or pet or even partner popping in the background has also become common. When just last year interviews would go viral when a kid popped into the background of a web conference or very important zoom meeting, now it’s just normal.

So, now that you’re working from home, what can you claim?

There has always been a home office claim, and it has been common to claim the set rate per hour method which is easier than collecting all your receipts for gas and electricity. Given the current climate, the ATO have announced a new rate available from March to June 2020 in light of the Covid-19 pandemic sending us all to our home office.  

These claims are for individuals working from home. This does not include running a business from home.

Running expenses

If you have been working from home, you can claim the work-related portion of your running expenses.  These running costs include:

• home office equipment (items under $300 in full and items over can be depreciated accordingly)
• heating
• lighting and cooling
• cost of repairs to furnishing
• cleaning
• other expenses like paper and ink.

You can claim running expenses in two ways.

1. Fixed rate

This is a fixed rate of 52 cents per hour. This rate is to cover energy and the value of common furniture items use in home office areas. All you need to do for this claim is to determine and record the actual hours you worked from home for the year. You can also keep a diary for 4 weeks documenting the usual pattern of working from home.

2. Actual expenses

You can claim the actual expenses incurred this clearly takes a little more work than number one. 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 calculate receipts for:

• cleaning
• heating, cooling and lighting – You will need to work out the cost per unit, average unit per hour and total annual hours used for work-related purposes

Occupancy expenses

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.

Telephone and internet expenses

On top of running costs or occupancy costs, you can also claim telephone and internet costs. You can either:

1.     Claim up to $50.00 where the use is incidental using the following rates:

• 25c for calls made from a landline
• 75 c for calls made from mobile
• 10c per text message

2.     Or, where you have good records, you can use the itemised bill and determine your work use over a 4 week period. You can then apply this to the year. This can be calculated by the number of work calls, amount of time spent on work calls proportionate to other calls and data used for work purposes. Bundled plans need to be apportioned accordingly.

Using the set rate method is simple and generally very effective, it requires less work in identifying costs and will usually come out at a similar rate.

Covid-19 Short cut method

The ATO has now announced a new short cut method. This is a set claim of 80 cents per hour for each hour you work from home due to Covid-19. This is where you are fulfilling employment duties or incurring additional running expenses. You don’t need to have a separate dedicated area for this claim. This short cut method includes:

• lighting, cooling & heating
• decline in value
• cleaning
• phone outgoings and decline in value
• internet costs
• computer consumables
• stationery
• decline in the value of your computer

You aren’t able to claim additional expenses for any of the above items outside of this claim, and you must keep a record of hours worked from home, such as timesheets or diary notes.

How to claim

Now that we have worked through this, let’s work through an example. Say you were required to work at home 38 hours a week from April 1 to June 30 (13 weeks). You have a dedicated office space that is 5% of your home floor space.  The following expenses are incurred:

• Telephone = $50 per month and 10% work use
• Internet = $100 per month and 40% work use
• Stationery  = $65
• Gas and electricity = $890
• Cleaning = $200
• Occupancy costs = $6500
• Purchased a computer 1 April for $2000 used 90% for work

Method 1: Running costs - Fixed Rate

• Fixed rate per hour = $256
• Telephone and internet = $135
• Stationery = $65
• Computer depreciation = $329
• Total claim = $785

Method 2: Running costs - Actual expense

• Gas & Electricity = $125
• Cleaning = $10
• Telephone and internet = $135
• Stationery = $65
• Computer = $329
• Total claim = $664               

Method 3: Occupancy expenses (Very limited application)

• Occupancy outgoing 5% = $325
• Cleaning = $10
• Telephone and internet = $135
• Stationery = $65
• Computer = $329
• Total claim = $864

Method 4: Shortcut Method

• Fixed rate per hour = $395

Based on the above methods, the running costs fixed rate is fairly simple to calculate, it allows greater depth with the claim and doesn’t require you to calculate electricity costs. The Occupancy expenses are higher however, this is only available where you generally have no external office to go to as part of your employment. For a quick method, the short cut is simple and easy, it doesn’t require you to collect all your receipts but it does require some diary evidence supporting your working-from-home hours.

Receipt Cleansing

Being stuck at home has left us scouring the halls for specs of dust on the skirting boards and doing a cleanse of unwanted items around the house. For us, as accountants, this has included doing a receipt and record cleanse. If you’ve got the time, we recommend this as a fantastic distraction activity for everyone.  

You need to keep all receipts relating to your tax returns for 5 years from the date of lodgement. However, the ATO does have the discretion to go back even further if there’s criminal activity involved.

The type of records you need to keep include:

• details of income or payments you have received
• expenses relating to income or payments you have received
• documents relating to asset purchases or disposals
• tax-deductible donations
• any information that was included in your tax return

Basically you should be able to reference your return with your records.

I have created a little timeline to help you determine what can go:

Tax Return     Lodged           Date you can dispose

2019                 May-20              Jun-25

2018                 May-19              Jun-24

2017                 May-18              Jun-23

2016                 May-17              Jun-22

2015                 May-16              Jun-21

2014                 May-15              Jun-20

Remember if you lodged your returns late you need to keep the information 5 years from that date.

Additionally, if you have depreciated items carried forward, you need to keep the receipt for the item in the future tax lodgement period.

TIP: You can keep records in paper form or digital format. They must be true and clear copies of originals when keeping digital records. Be mindful of carbon receipts that fade when stored in plastic. I recommend also backing up the electronic copies onto an external hard drive.

I hope this update has been useful. Now is the time to start collating all your receipts for 2020 Tax time.  We’re looking forward to catching up with all soon as we process your claims.

For anyone that hasn’t completed their 2018 tax return, now is the time to complete. You can use our preparation checklist to get you started and email it to us.

Until next time,

 Liz, Julian & the Bluebird team