Do your homework when working from home

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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. This worries the Commissioner…

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.

What are these mistakes, errors and questionable claims due to…

“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,”

And then the Commissioner gets a lot more specific in three areas… The first is 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.

The second is 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.

And the third is 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.

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About Ken Mansell

As a stay at home Dad most of the week this is my way of pretending I am still the tax counsel of ASX and SEC listed companies, working at big 4 firms, working at the Federal Treasury, on the Henry Review and at Parliament House for the previous government.
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