Employee deductions you can and can’t claim — and what the ATO is targeting

Working from home tax deductions can get complicated. Get across the rules for a new era of work so you don't get caught out or leave money on the table.

A new era of work and tax

Covid-19 has fundamentally changed how Australians live and work — remote-first and hybrid working models are becoming the norm. If you're one of the 67% of Australians who sometimes or always work from home, you might be looking for some straight answers on what you can and can't claim on your 21-22 tax return.

Even if you’re used to DIYing your tax, working from home post-pandemic adds some new elements. Let’s take a look at:

• who pays for employee work from home expenses
• what you can and can’t claim
• what’s on the ATO’s radar in 2022 — including three golden rules to keep you on track.

Who pays for work from home employee expenses?

Who covers your expenses when you work at home – you or your employer? The short answer – it depends on the company.

Typically, employers should cover the costs of:

• office equipment such as a laptop, desktop computer and work phone
• other tools required you need to fulfil your work duties, such as:
  • business-specific software like Adobe Illustrator and Photoshop
  • marketing, sales and project management systems
  • audio and visual conferencing.

Employees generally cover their costs for:

• running a home office
• office furniture
• internet connection and networking needs.

What employees can claim as deductions

Keen to get some pennies back in your pocket? Here’s 5 common home office expenses you might be eligible to list as deductions.

• Electricity, heating, cooling and lighting: Depending on the size of your home office and how long you spend working in it each week, you can claim a portion of household utility bills.
• Home office equipment and furniture: For computers, printers, phones, desks and shelving — you can claim the total cost for items up to $300.
• Depreciation of home office equipment and furniture: For items worth $300 or more, you can claim a deduction for the decline in value of that item as it relates to your work. For example, if your new printer costs $500, you may be able to claim depreciation on its value based on 80% use for work purposes.
• Work-related phone and internet expenses: You can claim a deduction for your work-related phone and internet expenses – but only if your employer does not already pay for them. For claims up to $50, you don't need much supporting documentation. Greater than $50? You'll need to keep a record of four weeks in each income year that reflects your usual expenses and use.
• Other work-related costs: Don't forget about computer consumables like printer cartridges, stationery, cleaning costs, and home office equipment and furniture repairs. If it’s critical to getting your job done, check if it’s a deduction. 

What employees can’t claim as deductions

No one wants to get in the ATO’s bad books. Stay on the right side of the rules and avoid claiming these deductions.

• Food and drinks: Unfortunately — no matter how many trips to the fridge — you can’t claim snacks, tea, coffee or milk.
• Occupancy costs: It’s unlikely your home office is used as a place of business if you’re an employee with a regular place of work elsewhere. As an employee, it’s unlikely you can claim rent, mortgage payments, renovation costs, rates, land taxes or house insurance premiums. Attempts to claim these costs can lead to a hefty capital gains tax (CGT) bill if you sell your home, or put your insurance policy in doubt.
• Pyjamas, leisure wear and ugg boots: For many, these are work from home essentials. But no, you can't claim them as critical to your role.
• Costs already covered by someone else: You can't double-dip and claim for expenses already covered by your employer. If others in your household also work from home, consider the proportion of shared bills being claimed.

So, how much can you claim?

If an expense was for both work and personal use, you can only claim the work-related portion of the expense as a deduction. For example, you can’t claim 100% of mobile phone expenses if you use your phone to call family and friends or access private social media.

Work out how much you can claim using the ATO’s home office expenses calculator. Depending on your circumstances, they offer three calculation methods:

• Fixed rate method — usually 52 cents for each hour worked
• Shortcut method — a temporary pandemic measure that allows for up to 80 cents per hour worked in specific periods
• Actual cost method — if you meet eligibility and record-keeping requirements.

What’s on the ATO’s radar in 2022

The ATO has been clear that work-related expenses are on the agenda in 2022. ATO Assistant Commissioner, Tim Loh, said the ATO is targeting problem areas where they see people making mistakes. Loh recommends rethinking your claims to ensure you can satisfy the three golden rules:

1. You must have spent the money yourself and weren’t reimbursed.
2. If the expense is for a mix of work and private use, you can only claim the portion that relates to work.
3. You must have records to prove it.

DIY your deductions or get help?

Do your deductions make the grade? There's a lot to get your head around, especially if you've worked remotely on and off through the year. No one wants to leave money on the table, or risk unwanted attention with questionable claims.

DIY is doable if you're across all the rules, including any additional Covid-related payments or income. Otherwise, reach out to a trusted accountant and buy back some time and peace of mind.

Remember, getting help with your tax is an expense you can claim.

Get some expert eyes on your working from home deductions.
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