By Guest Blogger Benny Berkowitz, Director – Chi Berkowitz Partners
In the current age of the business world the virtual workforce is growing rapidly. More and more workers (including those who are self employed) are taking advantage of technology and choosing to work from home, rather than a traditional office.
As the 2016 financial year end is briskly approaching, it is essential to reflect on our individual circumstances to determine if there are any last minute tax tips to take advantage of and what must be done before the financial year ends to avoid a tax pitfall.
Home Office Expenses
When completing your tax return, you might be entitled to claim a tax deduction for expenses incurred in running a home office. In order to do so, the following needs to be satisfied:
- You spent the money yourself and were not reimbursed.
- The expenditure must be related to your earning of assessable income.
- Generally, you must be able to substantiate the expense.
There are deductions available for performing some or all of your work from a home office, including:
- Office equipment and stationery
- Work-related phone calls
- Repairs to your home office furniture and fittings
- Cleaning expenses
- Running expenses
You must keep evidence of home expenses including records and receipts. Where an expense is only partially incurred in earning assessable income, you will be required to prove how you came up with the business use percentage (i.e. by way of a logbook or diary).
A deduction for the running costs of maintaining a home office (i.e. electricity, gas, and depreciation) may be able to be claimed.
The Australian Taxation Office (ATO) has a prescribed fixed rate of 45 cents per hour (of home office usage) for home office expenses. This is far easier than keeping a detailed record of actual expenses incurred! You will need to support the calculation for the number of hours you claim under this method.
Claiming for technology
If you wish to claim a deduction for a laptop, mobile phone or other electronic devices as a work-related expense, you must be able to show the nexus between that technology and earning assessable income. It is fair to assume that any remote worker who is working from a home office will have a laptop or desktop computer setup which is necessary used for running their home office based business.
What you cannot claim
As an employee, you generally cannot claim a deduction for occupancy expenses, including rent, mortgage interest, council rates and house insurance premiums.
The notion of working from home is growing more and more popular and there appears to be a shift in Australia for employers allowing their staff to work remotely. Working in a virtual space certainly has its benefits and I am working from my kitchen table as I write this article. Claiming home office expenses is important and for a remote worker who works full time from home, these expenses can be substantial.
Benny has over 10 years of professional experience in accounting, tax and superannuation. He has spent time working in public practice and Big 4. His experience includes general accounting and tax consulting for private family groups, self managed superannuation fund (SMSF) trustees and business executives. Benny’s passion lies predominately within super and how a SMSF can be utilised for tax efficiency, estate planning and asset protection. He also focuses on assisting SMSF trustees identify value adding opportunities to their existing tax structure. Benny regularly writes articles on personal tax, estate planning and superannuation that are published nationally.
Important: This is not advice. Readers should not act solely on the basis of the material contained in this article. Items herein are general comments only and do not constitute or convey advice per se. Also changes in legislation may occur. We therefore recommend that formal advice be sought before acting in any of the areas. This article is issued as a helpful guide only. It is the responsibility of the taxpayer to ensure their records are accurate and complete and particularly, that all income has been included and that all claims can be substantiated. The ATO has substantially increased penalties for omitted income and incorrect claims arising from false or misleading statements of facts. This article refers to Australian taxpayers solely.