Australians who have been working from home due to coronavirus are being warned to be cautious about using a new “shortcut” to do their tax return.
- Experts warn a new 80 cents per hour method to claim work-related expense tax deductions could result in lower returns
- Using the old method requires far more record keeping and may be harder to navigate for those working from home for the first time
- Whatever method Australians opt for, the claims need to be related to their work and must be backed by records
On Tuesday, the Australian Taxation Office (ATO) announced a new method that allows people to claim 80 cents per hour for all their running expenses, rather than needing to calculate costs for specific running expenses.
The change will apply from March 1 to June 30, after which the ATO will review the arrangement for the next financial year as the COVID-19 situation progresses.
Taxpayers still have the choice to use the old method, known as the 52 cents per work hour method, to calculate the work-related portion of specific items such as phone and internet expenses, computer consumables, stationery and the decline in value of a computer, laptop or similar device.
But under the 52 cents method, taxpayers will need to apportion their use between what is personal and what is work-related, and they must do so on “a reasonable basis”.
Tax advisers say the choice Australians have is whether they want to opt for simplicity and less record keeping, or whether they are prepared to keep records and possibly claim bigger tax deductions.
Assistant Commissioner Karen Foat said on Tuesday that the 80 cents per hour method was introduced for many Australians who have never worked from home before and would find it difficult to apportion costs under the old method.
She said the 80 cents per hour method was “much simpler” and “quite generous”, as it would just require timesheets proving your working from home hours.
The old method could be still used as long as people have good record keeping and, regardless of what method people pick, the three golden rules for deductions still apply.
“Taxpayers must have spent the money themselves and not have been reimbursed, the claim must be directly related to earning income, and there must be a record to substantiate the claim,” Ms Foat said.
Why you might be underclaiming under the new method
5ways Group director and accountant Paul Meissner said while he applauded the ATO’s efforts at simplifying claims, taxpayers should still look at all their claim options to avoid paying more tax than they have to.
He said for people paying $80 to $100 per month for home internet plus their phone and looking to claim any extra items such as printer or scanner, using the shortcut could leave them worse off.
“The 80c shortcut includes some additional items that if claimed separately could easily result in more deductions,” Mr Meissner said.
“If you are now doing 40 hours per week work from home, the extra shortcut claim is only $40 per month.
“If you consider that this $40 includes your internet, phone, stationery and depreciation on any extra equipment you bought for your home office, your claim can easily add up to more using other methods.”
H&R Block’s Mark Chapman said, “as a general rule, taxpayers are better off claiming actual costs rather than using any of the ATO’s flat rate allowances, including this new 80 cents [per hour] rate”.
“If I work 150 hours a month — which are fairly standard full-time hours — from home, my claim will be $120 for that month,” Mr Chapman said.
Some Australians may opt for simplicity over bigger deductions
But the ATO’s flat rate allowance was easy to use, and some taxpayers may opt for simplicity over a bigger deduction.
“You simply keep a diary of your work hours and multiply the number of hours by 80 cents — that’s it,” Mr Chapman said. “It’s easy.”
Here’s what you can and can’t claim on tax
Tax deductions relating to cars, travel, clothing, mobile phone and internet use, and rental properties are among the top claims the ATO will be eyeing this tax time.
“Whereas if you want to claim actual costs, you still need to keep the diary but you also need to work out how much of your home, by floor area, is given over to your home office.
“You also need to work out how much of things like the home internet relate to your work use — as opposed to your spouse’s work use or your kids’ Netflix addiction — and then keep every invoice, receipt and bill that relates to all the things you’ve spent.”
“You’ll likely end up with a bigger claim, but the record-keeping requirement and the calculations will put many people off.”
He said that was why many Australians would opt for the flat-rate allowance.
KPMG tax partner Hayley Lock said the ATO shortcut approach was “pragmatic”.
“It does not require extensive record keeping and is simple to calculate,” she said.
But the question taxpayers needed to answer is, “how much time do you have and how good at record keeping are you”.
“If the answer is not a lot and not great, the ATO shortcut method sounds like a good option,” Ms Lock said.
“But for those who do want to keep records, there are some great tools available to start tracking expenditure, including the ATO’s own app.”
If you opt for the old 52 cents method, evidence is key
Tax Institute senior tax counsel Bob Deutsch agreed that using the 80c flat rate provides simplicity, with little needed in the way of documentary proof by taxpayers.
“A record of hours worked usually in the form of a time sheet will suffice,” he said.
But he also believes that people wanting bigger deductions should use the old method to calculate their work-related expenses.
“If you keep all the receipts and you proportion on a reasonable basis, you are likely to get a bigger deduction — in some cases maybe a much bigger deduction,” Mr Deutsch said.
“However, that requires more time and attention to detail, which is often lacking in taxpayers’ lives.”
Institute of Public Accountants general manager of technical policy Tony Greco said the pro was the shortcut was an administratively easy way to deal with what is now a new norm for some — working from home.
“For light users of internet and phone [it is] probably a good way forward, especially if they cannot be bothered with maintaining a diary of actual usage,” Mr Greco said.
But the negative was the shortcut rate was inclusive of internet, phone and extra computer equipment, which may not reflect true cost for heavy users.
“If you use the existing 52 cents for home office and diarise phone, internet and depreciate or write off equipment costing less than $300, you may be better off not using the higher rate,” he said.
“For heavy users of phone and internet, the status quo may be the better option.”
PricewaterhouseCoopers tax partner Jonathan Dunlea said the shortcut method was “particularly effective where multiple members of a household are working from home” but for an individual working full time the situation may be different.
Someone who had invested in home office assets such as a screen or printer and whose business use of internet, phone and computer equipment was more than $50 per month may find it beneficial to use the existing 52c method.
“Where an employee works 40 hours a week from home for four months under the shortcut method, the total deduction would be around $540,” he said.
“Where that same employee spends $500 on a monitor and printer (each costing less than $300), claims $50 per month for business internet and phone use and 52 cents per hour under the running expenses method, the deduction over a four-month period would be around $1,000.”
Work-related expenses 2017-18
- Car: $8.4b, claimed by 3.6m people
- Travel: $1.9b, 1.4m
- Clothing: $1.8b, 7.4m
- Self-education: $1.2b, 0.5m
- Other: $8.4b, 7.4m
In total, $21.7 billion was claimed by 8.9 million people (Source: ATO)
Each year, the ATO pays out tens of billions of dollars in tax deductions, the highest being for work-related expense claims and rental claims.
In the 2017-18 financial year, there were almost 9 million taxpayers claiming a total of $21.7 billion in work-related expenses.
But going forward, the ATO expects that could rise as more people work from home and claim more work-related expense deductions.
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