Keeping a diary could boost your tax refund

May 26, 2020

Using the Australian Taxation Office's temporary "shortcut" method for claiming home office expenses brought about because of COVID-19 could leave you worse off than keeping a diary and stating actual running costs.

In order to help out those working from home who will be claiming home office expenses for the first time, the ATO increased the shortcut "rate per hour" method to 80¢ for the portion of the financial year starting March 1.

Peter Bembrick, tax partner at HLB Mann Judd, says to claim a deduction using the shortcut method, taxpayers simply need to keep a record of their hours worked in the period and multiply that by 80¢.

The shortcut method aims to take into account all the extra expenses from working from home, including heating, lighting and computer consumables, such as printer paper and ink and stationery, without taxpayers having to keep records of those expenses.

Adrian Raftery says keeping records of home office costs could lead to larger deductions than using the ATO's "shortcut" method for claiming home office expenses.

However, taxpayers are still free to use the more time-consuming, pre-existing methods to deduct working-from-home expenses that required the keeping of detailed receipts to justify a claim.

“The ‘actual cost’ method involves keeping a diary to record the work portion of household running expenses over a representative 13-week period, and also requires the taxpayer to keep documentary evidence of the specific costs incurred," Bembrick says.

Adrian Raftery, founder of Mr Taxman, says the shortcut method is the simplest way of claiming home office costs and someone working 40 hours a week from their home from March 1 could be expected to claim about $540 using the 80¢ per hour method.

However, they would likely be able to claim more, depending on individual circumstances, by keeping a diary and using actual home office running costs, then producing it on ATO request.

Raftery estimates 30 per cent of those lodging tax returns this year are likely to see a substantial increase in the refund they receive from the ATO.

That is not only because of a surge in home office claims as more people work from home; many people have reduced hours and will fall to a lower income tax bracket, he says.

Many more with rental properties also will be claiming losses than in previous years, as their properties are vacant or landlords have negotiated lower rents or rent deferrals with their tenants.

Landlords to claim higher tax losses as vacancy rates rise

Source: SQM Research

That is likely to put a lot more pressure on cash flows, particularly next financial year, when rental markets could be weak for the whole year, he says.

Taxpayers could request a variation with the ATO of how much of their salary is withheld under the pay-as-you-go system, leaving less tax withheld and more in your pocket, Raftery says.

Mark Chapman, director of tax communications at H&R Block, says even though the ATO has brought in a shortcut method for home office claims, that does not mean it will be any less vigilant on picking up errors – whether accidental or not.

He says the tax office will be just as focused on the compliance hot spots identified in recent years, including work-related claims, of which a home office is only a part, and claims for rental properties.

Chapman says landlords must keep good records. If you cannot substantiate investment property costs, you cannot claim them, he says.

It is essential to keep invoices, receipts and bank statements for all property expenditure, as well as proof that your property was available for rent, such as rental listings.

Those who do their own tax returns have until October 31 to lodge them with the ATO. Those who use registered tax agents and have no outstanding issues with the ATO have until May 15 next year. Fees to registered tax agents are tax deductible.

Deductible home office running expenses

  • Utilities, such as heating and lighting
  • Cleaning costs for the work area
  • Mobile or landline phone expenses for work calls
  • Internet connection
  • Stationery and computer accessories such as print cartridges
  • Repair costs for equipment and furniture
  • Depreciation of equipment, computers, furniture and fittings
  • Small capital items, such as a computer purchased for working from home, can be claimed if they cost under $300. If the cost exceeds $300, the decline in value can be deducted.

This article was first published here on 26 May 2020 by The Sydney Morning Herald


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