Working from home: What can I deduct?

With the majority of Australia now under lockdown to slow the COVID-19 pandemic, many employers are either encouraging their employees to work from home or have now instituted mandatory work from home policies. While working from home has its benefits, there may be extra expenses too, ranging from printing costs, the need for more internet data and perhaps even additional equipment.

Depending on your circumstances, you may be able to claim a deduction for the additional running costs you incur, including expenses associated with heating, cooling and lighting in the area you are working from, work-related phone and internet, decline in value of a computer (work-related portion only), and decline in value of office equipment. 

To work out your expenses for heating, cooling, lighting, cleaning and the decline in value of furniture, you can either the fixed rate method or the actual value method. Under the fixed rate method, you keep records of your actual hours spent working at home for the year or keep a diary for a representative 4-week period to show your usual pattern of working from home. You can then claim a deduction at a rate of 52c for each hour that your work from home. The actual value method not only requires the keeping of a diary, you’ll also need receipts to show the actual amount spent and will be required to work out the cost based on floor area as well as other factors.

For phone and internet expenses, you can claim up to $50 without having to analyse your bills in detail. The rates you can use to work out the cost of your work calls are 25c for calls made from your landline, 75c for calls made from your mobile or 10c for text messages sent from your mobile. If you would like to claim more than $50, you will need to work out the percentage of work use over a 4-week period using a reasonable basis (ie the number of work calls made as a percentage of total calls).

If you have a work issued computer or laptop, you cannot claim any decline in value for the computer, this also applies to any work issued office equipment such as additional screens, a keyboard or a mouse. However, if you have purchased your own equipment such as a telephone, a printer or a computer chair, you can claim the full cost of items up to $300 or decline in value (depreciation) for items over $300. This is provided the purchased equipment is used purely for work purposes.

The depreciation that can be claimed depends on the effective life of the asset purchased and for any equipment that’s used both for work and personal purposes, an apportionment may have to be undertaken. Work-related portion of other running expenses including computer consumables such a printer paper, ink and various stationery can generally be deducted outright. 

Don’t forget the instant asset write-off

With businesses all around the country starting back up after the COVID-19 pandemic, many, including the federal government are hoping to trade their way out of a potentially prolonged recession. Businesses that are in relatively good shape can help the economy and themselves at the same time by purchasing any needed capital assets and taking advantage of the instant asset write-off now.

From 12 March 2020 until 30 June 2020, the instant asset write-off threshold amount for each asset has been increased from $30,000 to $150,000. Which means that businesses are able to purchase an asset up to the value of $150,000 and claim the entire amount (or the business-use portion) as a tax deduction provided it is first used or installed ready for use between those dates. Any businesses with an aggregated turnover of less than $500m is eligible.

You’d better be quick though, on 1 July 2020, the instant asset write-off threshold will revert back down to $1,000 and only small businesses with an aggregated turnover of less than $10m will be eligible. This means that the difference in timing could cost your business a large deduction in the current financial year. However, not all assets are included in the instant asset write-off, a small number of assets are excluded and there are special rules for the purchase of a car.

For example, if your business purchases a luxury passenger car costing $100,000 on 5 June 2020, while the instant asset write-off threshold is $150,000, you are not able to deduct the entire cost of the car. The cost of car for depreciation is limited to the car limit for the year. For the year ending 30 June 2020, the car cost limit for depreciation is $57,581, therefore, you will only be able to deduct $57,581 under instant asset write-off and cannot claim the excess cost under any other depreciation rules.

If, in the above example, your business instead purchases a work ute which isn’t designed to carry passengers and has been set up with all the trade tools in the tray for use in your business, the car cost limit for depreciation would not apply. So, if the ute was purchased for $70,000 on 5 June 2020, your business is able to claim the full deduction of $70,000.

It is also important to note that your business can claim the instant asset write-off on multiple assets, as long as the cost of each asset is less than the threshold. Whether or not GST is included or excluded from the threshold largely depends on if your business is registered for the GST. For any assets that cost the same or more than the relevant instant asset write-off threshold, it will usually need to be depreciated according to either simplified depreciation rules or general depreciation rules, depending on which one the business uses and the type of asset.

Government Contracts and the STR

With the Federal government planning to ramp up infrastructure spending to get the economy going with “nation building” projects, the opportunity is ripe for businesses to take full advantage and tender for these contracts. Before you dive into writing your tender, you should be aware that any contracts over $4m (including GST) will require your business to obtain a statement of tax record (STR) from the ATO.

It should be noted that any first-tier subcontractors undertaking work individually valued at over $4m (including GST) for the primary business will also need to obtain an STR. There may also be different rules depending on the structure of the business (ie partnerships, trusts, joint ventures, subsidiary of a tax consolidated group or a multiple entry consolidated group). 

A STR basically shows whether a business has satisfactory engagement with the tax system and is derived from the details contained in ATO systems. To obtain a satisfactory STR, a business must have the following:

  • up to date registration requirements (registered for ABN, GST and having a TFN);
  • lodged at least 90% of obligations under each lodgement type that were due in the last 4 years of operation (from the date of request for an STR) including income tax returns, BASs and FBT returns; and
  • paid any undisputed debt of $10,000 or greater by the due date or have a payment plan in place (does not include disputed debts subject to formal objections, review or appeal).

Businesses that have been in existence less than 4 years will need to meet additional conditions to obtain a satisfactory STR including making statements relating to having a tax record of less than 4 years in Australia, compliance and payment of Australian tax obligations, and having no tax-related convictions in the last 4 years.

If your business receives an unsatisfactory STR, don’t panic, the report will have outlined details of criteria you met or did not meet, or both. From that information you can take corrective action to bring your tax obligations up to date. Once that’s completed, your business can apply for the STR again.

As extra support for businesses that have been affected by COVID-19, if an unsatisfactory STR is issued, the ATO will contact the business to discuss options and help with any corrective action. It notes that where possible, it will assist businesses to obtain lodgement deferrals or put payment plans in place.

Those businesses that have previously applied for an STR should check to see it is still valid prior to tendering for any government contracts as a STR is only valid for 6 or 12 months depending on whether you have an Australian tax record of less or more than 4 years.

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