The pandemic has changed the way we work and some tax rules have been updated as a result. Here's what you need to know, especially if you’ve been working from home or if you’ve been running your small business from home.
This financial year continued to be very different in terms of how we carried out business, with many people still working from home and fewer than normal travelling for work or attending seminars, conferences and training courses. So, for many, what you can claim at tax time will be different this year.
Before June 30, it’s a great idea to make sure all your record keeping is up-to-date, according to Stephanie Mellick, head consultant and strategist at Gold Coast-based consultancy Iron Advisory.
Stephanie says that taxation claims need accurate records, such as timesheets, receipts and documentation of how you calculated work versus private usage, especially if an item was used for both purposes.
Establishing good practices in the short term will make a huge difference when it comes to tax time, whether you are an employee who worked from home for most of last year or you’re running a small business. You can find out more about record keeping for employees and businesses on the Australian Taxation Office (ATO) website.
If you’ve been working from home, you may have spent a lot more on home office equipment and had increased costs for heating and cooling, phone and internet charges. You should be able to claim the business portion of these things this year.
The ATO notes that there are different record-keeping requirements depending on which of three methods you use to calculate your working from home expenses.
Stephanie suggests the simplest method is the temporary shortcut method, introduced in response to COVID-19, which only requires you to keep a record of when you worked from home in a calendar or timesheet. It allows you to claim a deduction of 80 cents for each hour you worked from home and covers all additional deductable running expenses.
The ATO’s temporary shortcut method is only available until 30 June 2022.
Tip: There are other ways of calculating work-from-home expenses, which may be better suited to your circumstances. Check out the ATO website or talk to your tax professional if you are unsure.
You can claim running expenses for the area of your home that is used to run your business. (For example: heating, cooling, lighting, cleaning costs and costs of repairs to your business equipment.)
There are different methods for cliaiming expenses for home-based business. Sole traders and partnerships can use the actual cost method, 52 cents an hour fixed rate or the temporary shortcut method.
Consult your professional advisor to see what method works best for you.
Find out more about home-based business expenses on the ATO website.
Businesses can claim business tax deductions for most expenses from carrying on your business. Expenses need to be directly related to earning your assessable income, you can only claim the portion that is used for your business if it’s for a mix of business and private use, and you need to keep records for at least five years to substantiate your claims.
You may also be eligible for an immediate deduction or an accelerated rate of depreciation for the business use percentage of your assets under one of the tax depreciation incentives – you can consult your professional advisor to consider the depreciation incentive that’s right for you.
The ATO has some great information available on common deductions employees can claim at tax time, including what work-related deductions you can claim for your specific occupation or industry. This includes information about dry cleaning, occupation-specific clothing, vehicle and travel expenses. It’s important to note that any expenses should be work-related – you can’t claim private expenses such as home schooling your kids, or food costs when working from home.
From 1 July 2021, you can claim a deduction for any qualifying COVID-19 test (either PCR or rapid antigen test) you’ve bought and used for work-related purposes. (For example, to determine if you can attend or remain at work.) Be aware that you can only claim the work-related portion of the expense. Check out the ATO’s website for more information on claiming a deduction for COVID-19 testing and the records you’ll need.
This is a general overview. Please check the ATO website and consult a tax professional, because details between businesses and employees can and do vary. For everything employees need to know to make lodging your return quick, secure and simple, visit ato.gov.au/taxessentials.
For everything small businesses need to know, visit ato.gov.au/SBsupport.