Many Australians have set up home offices amid the Covid-19 pandemic, but what’s the best way to recoup those expenses?
Tax expert Adrian Raftery, director of Mr. Taxman, said there are several methods that can be used and it could make a big difference to how much you get back on your tax return.
And he also cautions that buying expensive new equipment during year-end sales may not make as good a financial sense as you think, because there is a major catch in getting it so close. June 30.
The easiest method
For those who really don’t want to go wild and don’t care if they don’t get the maximum amount of the tax refund back, the easiest method is called the “shortcuts method”.
This was introduced during the pandemic to make it easier for people to request reimbursement and has been extended for an additional year.
It allows people to claim 80 cents for every hour of working from home. So all you need to do is calculate how many hours you worked from home and then multiply that by 80c.
However, all home office expenses are considered covered by this, so you can no longer claim reimbursement for things like internet charges or the purchase of a new office or other equipment.
Mr. Raftery thinks that most people should avoid this method because they will be able to make more money by using other methods.
RELATED: Australians Who Will Receive ‘One-off’ Tax Refund This Year
For example, using the shortcut method, someone who works 37.5 hours per week at home, for 48 weeks, could claim $ 1,440 as a tax deduction.
“It sounds like a big deduction, but if you calculate the costs of running your home office (eg, internet, cell phone, computers, desk, chairs, and stationery) I would expect this to represent around $ 2,500, ”he told News. com.au.
“So you are leaving money on the table using the shortcut method. “
If you want more money
The other options use the “real cost” or “fixed cost” methods. The only difference between these two items is that the cost of electricity is set at 52 cents per hour for the “fixed cost” method, while the “actual cost” approach requires you to calculate it on the basis of the “fixed cost” method. help with your electricity bills.
Mr. Raftery prefers the “fixed cost” method because of its ease in calculating electricity costs.
When it comes to claiming other expenses, both methods work the same, and it’s more complicated if the equipment costs more than $ 300.
Mr Raftery said it was possible to claim any work-related office equipment, such as wireless keyboards, desks, chairs or mice.
Interestingly, specialty photography equipment stores like Hypop have also reported that more people are buying better lighting setups and better microphones for their homes so they look and sound better during the day. Zoom calls.
Mr Raftery said these were also legitimate deductions.
“However, if you buy all of this for your daughter’s netball team reunion, unfortunately you can’t claim it,” he said.
“Any expense must be incurred while producing taxable income.”
You can also claim operating costs such as internet, telephone and electricity, but not occupancy costs such as mortgage or rent payments, or home insurance.
If you buy items like stationery or an office chair that cost less than $ 300, you can claim the full amount on that year’s tax return.
RELATED: ATO Reveals Spending It Will Target This Year
Once you spend more than $ 300, you need to calculate depreciation based on the “effective life” of the equipment. Mr Raftery said the Australian Taxation Office provides a guide on how long people expect people to be able to use equipment in its latest version Tax decision 2022/3.
For example, electronics are considered to last three years. So if you buy a computer for $ 1,000, you have to divide that amount by three years ($ 333).
If you have not owned the computer for a full year, you should only claim the time that has elapsed since you purchased it. So the deduction would be $ 167 if you bought the computer six months ago.
Next year you will be able to claim the full $ 333 and the following year an additional $ 333. Then you will claim the remaining $ 167 for the past year. It is your responsibility to remember to claim the amounts each year.
If the computer is not only used for work, you should also reduce the amount of the proportion of personal use time.
Timing can be anything
It should be borne in mind that if you plan to purchase equipment worth more than $ 300 during year-end sales, you will not be able to claim much of it on your tax return. this year.
For example, if you buy something on June 30, you will only be able to claim one day of depreciation on that year’s tax return.
“If you spend $ 1,000 on a computer on June 30, you will only be able to claim about $ 1 for a day of depreciation (in 2020/21),” Mr. Raftery said.
You will have to wait until the next fiscal year to claim another full year of depreciation.
Despite the appeal of year-end sales, it’s actually better to buy expensive equipment early in the year so you can claim the entire year of use, rather than a few weeks or days. .
“Obviously, smart retailers will try to sell products for $ 299 or less,” Mr. Raftery said.
RELATED: Income Tax Calculator Reveals How Much You’ll Get Back
Other pitfalls to avoid
You must have a receipt for each expense and remember that if something is also purchased for personal use, you must only claim a portion of the expense.
“The ATO sees home office expenses as a potential audit area this year,” Mr. Raftery said.
“So if you’re a factory worker and want to try and claim $ 2,500 in home office expenses, maybe rethink that.”
Also keep in mind that when you claim something on the tax it doesn’t mean that you are getting the full amount back in a tax refund.
“When you see things advertised as 100% deductible, some people think they get back the full amount of tax if they spend $ 1,000,” he said.
“They’re probably tricked by marketing into thinking they’re getting all their money back.”
People should keep in mind that the money they get back will be the amount they would have paid in taxes.
For someone who pays around 40 percent tax and then claiming $ 1 on your tax return, you’ll save 40 cents this year.
“This is where people have been disappointed in the past, they spend $ 1,000 and get 40 cents back,” Raftery said.
“Most people only think about the tax this time of year and smart retailers know and understand it.”