Due to the mass exodus from commercial office to home office last year, the ATO brought in a new, simpler method to claim work from home expenses. As the trend for working from home, either part or full time continues, the new method was extended for another year.
They called it the ‘Shortcut’ method but the important question is:
How does the Shortcut Method differ from the existing ‘Cents Per Hour’ method of claiming work from home running expenses, and are you better off using this new method or sticking with the old one?
(There is an ‘actual expenses’ method for claiming work at home tax deductions but that can get pretty complicated, so for the purposes of this article, we’ll just explore the two methods most people are likely to use.)
The standard fixed rate method works like this: You claim 52c for each hour that you work from home. This covers running expenses of your home office area. You can also claim a percentage of your internet expenses and mobile phone expenses, if you need to use your personal phone for work related tasks.
The new shortcut method means you simply claim 80c per hour for every hour that you work from home.
- March 1 to June 30, 2020, for 2019-20 tax returns
- July 1 2020 to June 30, 2021, for 2020-21 tax returns
- July 1 2021 to June 2022, for 2021-22 tax returns
But is the shortcut method better for you or the ATO?
The increased hourly rate of the shortcut method looks great on the surface but it might not be the best option for your circumstances. To find out which one is best for you, you need to start with a few sums!
This is easier to explain if we look at a couple of examples:
Emma is a graphic designer who worked at home for 15 hours a week between July 1 2020 and June 30, 2021. She took four weeks leave over the year. She recorded her phone and internet usage for one month and worked out that 50% of her mobile phone use is work related and internet is 60%.
Fixed rate method:
- 15 hours per week x 52c x 48 weeks between July 1 2020 and June 30, 2021 = $374.40
- Emma could claim 50% of her $99 monthly phone bill x 11 months = $544.50
- Emma could claim 60% of her S80 monthly internet bill x 11 months = $528
- The total work from home expenses Emma can claim for this period is = $1446.90
- With this method, Emma could claim 15 hours per week x 80c x 48 weeks = $576
But that’s all! Phone and internet expenses are included in the 80c per hour rate of the shortcut method so Emma can’t add these on.
Choosing the standard fixed rate method for running expenses, at 52c an hour. Plus adding on her phone and internet costs separately, Emma could claim $870.90 more than if she used the new shortcut method.
Peter is a consultant who worked full time at home instead of the office, between July 1 and June 30 2021. Peter also took 4 weeks leave through the year. Unlike Emma, his company provide him with a company mobile phone. They don’t pay his internet costs though and he splits those with his house mate. Because he shares the internet, he can only claim 50% of his total internet use for working at home.
Fixed rate method:
Peter can claim 38 hours per week x 52c x 48 weeks = $948.48
His monthly Internet bill is $80 a month, split 50/50 with his housemate. Peter’s share of the bill is S40 and so he could claim 50% of that amount for 11 months = $220
Peter’s total work from home claim = $1168.48
Peter can claim 38 hours per week x 80c x 48 weeks = $1459.20
Peter can’t claim his internet with this method as it’s included in the 80c per hour rate.
Peter’s work from home deduction claim would be $290.72 higher by using the new Shortcut method.
So, you see, it really is worth looking at the figures before you decide which method to choose. It may be easier to just opt for the shortcut method to claim your work from home tax deductions but you may find yourself out of pocket by quite a lot of money.
Still not sure which method is best for you?
No problem, just get in touch with Etax Local and one of our friendly team will work it all out for you, then incorporate the maximum allowable claim into your tax return this year.