Many Australians have now made working from home, a permanent situation, and many of those who haven’t are at least working with a hybrid model of switching between home and the office. If working from home has become a regular part of your work week, it’s critical to understand what tax deductions you may be eligible for, as the Australian Government has announced several new working from home tax developments that could impact you in 2022.
With tax time coming up, it is important that you keep a record of your working from home expenses so that your end of the financial year is a breeze. But, before you estimate your expenses, you should be aware of certain recent ATO changes that may affect how much you can claim. If you are an individual and have been working from home, it can be confusing to know what items you can claim, and what items you can’t, and can often miss out on valid deductions. That’s why we have compiled an easy guide to tax time 2022.
1. Marginal income brackets
The 2021 upper limit of some marginal income brackets for individuals has increased, with:
- The 19% tax band increasing from $37,000 in 2020 to $45,000; and
- The 32.5% tax band increasing from $90,000 in 2020 to $120,000
2. Superannuation
This year’s budget focuses on relieving Australians’ cost-of-living challenges, with limited adjustments to existing superannuation system arrangements. The Superannuation Guarantee (SG) rate is currently 10% and from July 1, 2022, the SG rate will increase to 10.5% and will continue to rise by 0.5 percentage points each year until it reaches 12% by July 2025.
Because tracking your working from home tax expenses can be challenging, the ATO has introduced a new way of claiming work-related tax deductions. The temporary shortcut method allows you to claim 80c per hour for each hour worked from home which was initially valid from March 1 to June 30, 2020, however, it is now valid until June 30, 2022. This is a simplified method to calculate your expenses with minimal record-keeping requirements. This shortcut method includes everything as it pays for all of your working-from-home expenses, including energy and gas, office supplies, phone and internet bills, and the depreciation of equipment and furnishings. This means you won’t be able to make further claims on any of these expenses again.
If you have a designated workplace, such as a home office, you can claim 52 cents per hour working from home using this long-standing fixed rate method. This includes the running costs for heating, lighting, cleaning, cooling, and depreciation of your work equipment. You can also separately claim for the other work-related expenses of your phone, internet, computer depreciation, and other expenditures individually.
Tip to remember: You will need to keep a year’s worth of records or a four-week diary to show your typical pattern of working from home.
If you have a dedicated workspace or room at home and are meticulous about keeping records, you can calculate the work-related portion of most or all work-from-home expenses like cleaning, heating, cooling, lighting, and other expenses. The ATO has a home office expenses calculator as well as a depreciation and capital allowances calculator to assist you to keep track of everything. Again, this actual cost method has much stricter eligibility criteria and has other tax implications such as capital gains, so it’s best to speak to a tax agent before deciding to use this method.
The main requirements for claiming an expense as work-related are:
- You must have spent the money
- The expense must be directly related to earning your income
- You must have a record to prove it
You are required to keep a record of the hours you worked from home. This could be:
- A timesheet
- A roster
- A diary
In order to claim work-related deductions, you must keep a record. The receipt must include the following information:
- name of the supplier
- amount of expense
- nature of products or services
- the date on which the expense was paid
- date of the document
Claim a deduction for any additional running expenses you incur while working from home. This includes a wide variety of costs, including:
- Electricity costs from heating, cooling, and lighting your home office/work area and powering your work-related items (such as computer) while you are working
- Cleaning costs for your home office/work area
- Internet and phone expenses
- Printer paper, ink, and stationery
- Home office equipment (computers, printers, tablets, phones, furniture, etc
- full costs of items up to $300 or decline in value (depreciation) for items over $300
If you’re working from home, you won’t able to claim a deduction for the following expenses. These include:
- Coffee, tea, milk
- General household items
- Costs related to your kid’s education (such as iPads, tablets, desks, and subscriptions to online learning services)
- Items your employer pays or reimburses you for the expense (for example, your work laptop or phone)
- Rent, mortgage interest, water, etc
Be cautious of these common mistakes that individuals make while filing their tax returns:
- Make sure to claim what you’re entitled to: You have the right to claim a deduction for any expense incurred in earning your income. So, if you’ve paid for a work-related expense and have the right documentation or paperwork to back it up, don’t be hesitant to file a claim.
- Claiming for extra deductions: You can only claim what you’ve spent. So, instead of inflating deductions to receive a higher return, claim only for the expenses that you can easily verify using an invoice, receipt, or bank statement. If your deduction claims are incorrect, you’ve to repay the tax avoided, plus interest at the rate of around 9 percent each year. If the ATO considers you acted irresponsibly, you might face a penalty of 25 percent to 95 percent of the tax evaded.
- Using pre-filled data from the ATO: You can now pre-fill a lot of your income information directly from the ATO’s system with just the click of a button. Take proper caution and don’t assume that the income data is true or complete. Always use your own data (payment summaries, etc.) as the primary source of information. If you exclude income and are questioned by the ATO, you will have legal responsibility, even if you used pre-filled data from the ATO.
Disclaimer: While we do want you to get the most out of the end of the financial year and stay updated with tax changes, please note that we are not tax advisors! For tax and financial advice, talk to your advisor, hop on the ATO (Australian Taxation Office) website or consult a registered tax advisory business or BAS agent. The ATO offers short online courses for people in business to update their knowledge, as well as online services for businesses to give you more payment options.
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