If your employee is carrying out a substantial amount of their duties for you from their home, they are entitled to deduct work-related expenses from their taxable income. What are those expenses? How much can they deduct? What do they need to provide to the Australian Taxation Office (ATO) at tax time? Here are the answers to these questions and more.
What work-related expenses can remote workers deduct?
- Electricity (heating, cooling, lighting).
- Gas (heating, cooling, lighting).
- Decline in value of equipment or furniture.
- Cleaning expenses.
- Computer consumables.
How do employees calculate their home office deduction?
For the years 2013 to 2022, the ATO will accept the fixed rate or actual cost methods to determine your deduction. Each comes with recordkeeping requirements.
The fixed rate method applies 52 cents for each hour worked from home for the accepted expenses listed above, so long as you have sufficient records of the expenses.
The ATO recommends a diary which represents a typical four-week period with internet use and percentage of the year you use your depreciating assets exclusively for work. Receipts of those items and other records (phone) are also needed.
The actual cost method is available to people who incur extra costs working from home and, typically, do not share the space (and costs) with another person using the same space. To calculate your deduction, add up the additional costs of gas, electricity, internet, telephone and depreciating assets.
To determine how much of your running expenses (i.e. gas, electricity and internet) are deductible, you need to know the cost per unit. Then you need to know how many units were used to conduct work from home in a year.
Depreciating furniture or electronics that cost $300 or more have to be deducted over the lifetime of the asset. You can claim the total value for items under $300 in the same year, so long as you delineate between work use and personal use.
For cleaning expenses, you will need to know the total area of your living space and the area you work in. Add up the total amount spent on cleaning and multiply it by the percentage of your living space used for earning an income.
Recordkeeping of all bills, receipts and documents that show the additional running expenses incurred for work are mandatory to claim a work-from-home office deduction.
WMC Accounting has a history of working with clients from a variety of sectors with their business taxes. Learn more about our Tax Accounting Services.