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Are you getting your fair share of working-from-home tax deductions?

Are you getting your fair share of working-from-home tax deductions?

As we emerge from Covid-19, many people continue to maintain a hybrid work model, mixing working from home (WFH) and working from their employer’s business premises.

However, there is little guidance from the tax office on hybrid working arrangements (HWA), resulting in gaps surrounding tax treatments for travel, the use of business equipment at home and the increase in household expenses resulting from WFH – ultimately leaving taxpayers left to guess what they can and cannot legitimately claim.

WFH is quickly becoming the world’s new “business as usual”, with it providing the flexibility needed to accommodate shifts in the global environment.

Due to fluctuations caused by the pandemic and trepidation of the so-called “great resignation”, employers are more inclined to please their workforce by being more lenient towards adopting permanent WFH arrangements, especially if it helps employee productivity and role satisfaction remain high.

However, the blurred lines ­between work and home life have created confusion on what a legitimate work-related tax deductible expense is and what records need to be kept in order to substantiate a tax deduction.

There has also been a noticeable influx of queries regarding travel expenses and the intricacies surrounding claims.

Confusion has arisen around what expenses can be claimed if an employee’s home is their main base of employment – but they are required to visit their employer’s premises to attend meetings or pick up tools.

Ordinarily, travel between home and work was considered private in nature, but is it now legitimate to claim travel costs in any of these situations?

The use of an employee’s own computer equipment and other facilities at home for business purposes on an ongoing basis also ­requires long-term clarification, particularly in reference to how the associated costs will be treated for tax purposes.

Here’s what you can do:

It would be wise for individuals to critically review changes in household expenses due to a shift to WFH and consider what records should be kept to substantiate any tax claim made for those expenses.

The ATO’s temporary shortcut method for claiming WFH expenses, due to expire on June 30, 2022, is set at a rate of 80c per hour. This is an all-encompassing rate, meaning you can’t separately claim costs for internet and phone charges, new equipment purchased, depreciation on home ­offices, or other relevant expenses.

Many have been seduced by this, calculating the number of hours worked from home in the ­financial year and claiming a tax deduction using the shortcut method without comparing the outcome of that calculation to the actual WFH expenses they have incurred.

For example, if an individual worked from home for 30 hours a week over the course of a year and takes four weeks of annual leave, their claim using the temporary shortcut method results in a tax deduction of $1152.

However, if they kept a log of their work-related phone and internet use, claimed depreciation on WFH office equipment, and they worked out their actual increase in costs for utilities, they may discover that a larger claim could have been made.

It is clear that until the ATO provides comprehensive guidance, individuals will continue to struggle to make correct tax claims, with guidance from a tax professional being the only way to overcome the ATO’s convoluted directions.

Meanwhile, a lack of sufficiently detailed guidance from the ATO has made it difficult to decipher this puzzle, with employees heavily relying on their interpretation of the ATO’s guidance in order to make decisions.

ATO rulings such as TR 2021/4 somewhat address these issues, but they are not widely understood by taxpayers and their examples are more clear cut in their stated facts than what they would be realistically.

It seems the ATO has been slow or potentially reluctant to provide realistic guidance in this area, with the exception of the temporary shortcut method for claiming work-related home ­office costs during the pandemic.

Consequently, it is difficult to predict where the rules will be beyond the current financial year, making it difficult for employees to plan possible tax implications.

These issues would come to resolution if the ATO focused on the reality, with their website content and draft rulings correctly reflecting comprehensive examples of how to deal with tax arrangements for hybrid working.

This would also provide taxpayers with a single source of truth from where they can seek appropriate guidance, lowering confusion and the possibility of incorrect tax claims being made.

This article was first published by The Australian on 3 December 2021. Licensed by the Copyright Agency. You must not copy this work without permission.
This content is general commentary only and does not constitute advice. Before making any decision or taking any action in relation to the content, you should consult your professional advisor. To the maximum extent permitted by law, neither Pitcher Partners or its affiliated entities, nor any of our employees will be liable for any loss, damage, liability or claim whatsoever suffered or incurred arising directly or indirectly out of the use or reliance on the material contained in this content. Pitcher Partners is an association of independent firms. Pitcher Partners is a member of the global network of Baker Tilly International Limited, the members of which are separate and independent legal entities. Liability limited by a scheme approved under professional standards legislation.

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