ATO ANNOUNCES SHORTCUT METHOD FOR HOME OFFICE TAX DEDUCTIONS

The Australian Taxation Office (ATO) has announced a new temporary short cut method to simplify claiming tax deductions for working from home due to COVID–19.  Under the new shortcut method, from 1 March 2020 until at least 30 June 2020 (which may be extended), taxpayers can claim $0.80 cents per work hour for additional running expenses, where an individual carries out genuine work duties from home (ie. not just checking emails).

This is an alternative method to claiming home running expenses under existing arrangements, which generally require an analysis of specific running expenses incurred and more onerous record-keeping.

Working from home claims for 1 March to 30 June

The new temporary $0.80 cents per hour method is proposed to cover all deductible running expenses associated with working from home and incurred from 1 March 2020 to 30 June 2020, including:

• electricity expenses associated with heating, cooling and lighting the area at home which is being used for work;
• cleaning costs for a dedicated work area;
• phone and internet expenses;
• computer consumables (ie. printer paper and ink) and stationery;
• depreciation of home office furniture and furnishings (ie. an office desk and a chair); and
• depreciation of home office equipment (ie. a computer and a printer).

It is important to note that the $0.80 cents per hour method, separate claims cannot be made for any of the above running expenses (including depreciation of work-related furniture and equipment).  Consequently, using this new temporary method could result in a claim for running expenses being lower than a claim under existing arrangements (including the existing $0.52 cents per hour method for certain running expenses).

Under this new temporary $0.80 cents per hour method there are certain requirements which have been relaxed, including:

1. there is no requirement to have a separate or dedicated area at home set aside for working (ie. a private study);
2. multiple people living in the same house could claim under this method; and
3. an individual will only be required to keep a record of the number of hours worked from home as a result of the Coronavirus, during the above period (which can include time sheets, diary entries/notes or even rosters).

Working from home before 1 March 2020

Working from home running expenses incurred before 1 March 2020, and/or incurred from this date where an individual does not use the $0.80 cents per hour method (above), must be claimed using existing claim arrangements.

Broadly, these existing claim arrangements require:

• an analysis of specific running expenses incurred as a result of working from home; and
• more onerous record-keeping, including:

1. provide receipts and similar documents for expenses being claimed,
2. requirement to maintain a time usage diary or similar record to show how often a home work area was used during the year for work purposes.

Reimbursements from employers

Where an employer reimburses expenses incurred by employees for working from home, it is important to note the correct tax treatment in the hands of the employee.

Reimbursement can take one of either two methods, including:

• the employer might simply transfer the actual amount to the employee - in which case there should be no assessable income and no deduction (which is effectively a tax neutral result); or
• the employer might give the employee a lump-sum allowance to cover the agreed deductible expenses - in which case the employee should report the allowance as income and claim a deduction using the principles set out above.  Therefore, if the allowance exceeds the actual expenses, the difference is taxable income.

The original rules (before 1 March 2020) were drafted during a time when working from home was the exception not the rule.  For a limited period of time (ie. 1 March to 30 June 2020) the ATO has relaxed and expanded these rules, and whether any further changes are likely to be unveiled is currently unknown.

Please do not hesitate to contact your Lowe Lippmann Relationship Partner if you wish to discuss any of these matters further.