Technology-driven changes to the employment market are seeing record numbers of Australians claiming deductions for expenses incurred while working from home. But a high level of mistakes, errors and questionable claims has prompted the Australian Taxation Office (ATO) to increase attention, scrutiny and education for home office expenses this tax time.
Assistant Commissioner Kath Anderson said that last year, 6.7 million taxpayers claimed a record $7.9 billion in deductions for 'other work-related expenses' which includes expenses related to working from home.
"There is a rising trend of employees working from home, and while extra costs related to working from home are usually deductible, we are seeing some taxpayers either over-claiming or claiming private costs," she said.
"There is mounting evidence that many taxpayers don't know what they can and cannot claim. In particular, we are seeing some taxpayers claiming expenses they never paid for, expenses their employer reimbursed, private expenses and expenses with no supporting records," Ms Anderson said.
Taxpayers can legitimately claim additional costs incurred as a direct result of working from home, but need to be careful not to claim private expenses as well.
"Claims for the work-related portion of expenses like phone, internet, depreciation of your computer, printing and stationary are all allowed," she said.
"But one of the biggest issues we are seeing is people claiming the entire amount of expenses like their internet or mobile phone, not just the extra bit related to work. In reality, the rest of us are subsidising their private phone calls and internet usage, which is not okay," she said.
According to Ms Anderson, the additional costs of running expenses like electricity for heating, cooling and lighting are deductible, but you need to be able to demonstrate that there were additional costs.
"If working from home means sitting in front of the TV or at the kitchen bench doing some emails, it's unlikely that you are incurring any additional expenses. However, if you have a separate work area, then you can claim the work-related portion of running expenses for that space," she said.
While employees can claim additional running costs associated with working from home, occupancy costs are limited.
"Employees cannot generally claim occupancy-related expenses like rent, mortgage repayments, property insurance, land taxes and rates," Ms Anderson said.
Ms Anderson warned that employers are sometimes contacted to verify expenses.
"Taxpayers claiming working from home expenses should remember that we might contact their employer to confirm their claim. Sometimes we discover that the employer paid the costs, either upfront or through reimbursement, while other times we discover there was no need for the employee to work from home at all."
According to Ms Anderson, record-keeping is a key focus area for the ATO this year.
"This tax time we expect to disallow a lot of claims where the taxpayer hasn't kept records to prove that they legitimately incurred the expense and that the expense was related to their work," she said.
"To claim working from home expenses, taxpayers must keep supporting records such as receipts, diary entries and itemised phone bills or other records. Even though detailed receipts are not required for phone and internet claims up to $50 per year, it's not an automatic entitlement – you still need to be able to show how you calculated your claim," she said.
"The ATO has a handy Home Office expenses calculator on our website to help taxpayers calculate their claim, and a very good guide to working from home," Ms Anderson said.
While technology is allowing more and more employees to work from home, it is also allowing the ATO to deploy sophisticated systems and analytics to spot claims that don't add up and claims that are out of the ordinary compared to others in similar occupations earning similar income.
Ms Anderson said there are three golden rules for taxpayers to follow to get working from home claims right. "One – you must have spent the money yourself and not been reimbursed, two – the claim must be directly related to earning your income, and three – you need a record to prove it."
For more information: the ATO home office expenses poster (PDF 251KB)This link will download a file, or visit ato.gov.au/Individuals/Income-and-deductions/Deductions-you-can-claim/Home-office-expenses/
To find the ATO home office calculator, visit ato.gov.au/calculators-and-tools/home-office-expenses-calculator/
Over-claiming mobile phone and internet expenses
An architect claimed 80% of the cost of his private mobile phone and home internet as a work-related expense.
When asked, the taxpayer provided his non-itemised phone and internet bills for the year as evidence for his claim. However, he had not maintained a diary or other record demonstrating how he calculated that 80% of his costs related to his work. His employer was also unable to verify the extent to which he was required to use his private mobile and internet connection for work.
Although the taxpayer had not maintained or provided appropriate records, the ATO did accept that he was required to incur these expenses and allowed a claim of $50 – the maximum phone/internet claim that can be allowed without supporting evidence.
Incorrectly apportioning expenses
A teacher who was promoted to school principal in the income year claimed home office expenses for electricity and phone of $2,400.
When the ATO contacted the tax agent, the agent provided a letter from the employer to confirm that the taxpayer was required to work from home out of school hours. However, neither the taxpayer nor their agent could demonstrate how they calculated the claim.
The taxpayer submitted a voluntary disclosure, explaining that they had made an incorrect claim and lacked records to substantiate it, and should have instead used the fixed rate of 45 cents per hour. Based on the hours the taxpayer had worked at home over the school year, the claim was reduced by 70%.
A penalty was applied for not taking reasonable care when preparing the return. However, the penalty was reduced because the taxpayer provided the voluntary disclosure before an audit commenced.
Incorrectly claiming occupancy expenses
An advertising manager claimed a deduction for her rent and electricity costs. When asked why she made these claims, the taxpayer explained that she was required to work at home outside regular hours because a lot of business was generated from overseas clients, and provided the calculations for her claims.
However, the area used by the taxpayer did not have the character of a 'place of business,' (eg a hairdresser's home salon, caterer's home kitchen or a photographer's home studio). This meant that while her claim for electricity costs (running expenses) was allowed, her claim for rent (occupancy expense) was disallowed. A penalty was also applied for failing to take reasonable care.
Want to know more? Call us at Robert Goodman Accountants on 07 3289 1700 or email us at firstname.lastname@example.org. Source: Australian Taxation Office Last modified: 11 Sep 2018 QC 56777. Brought to you by Robert Goodman Accountants.