Proving deductions for home office expenses, mobile phones and internet

Sometimes it is good to remember the basics, especially when the Commissioner is focusing on it. So lets go back to 2001 and have a look at one of my favourite Practice Statements – Practice Statement Law Administration PS LA 2001/6 Verification approaches for home office running expenses and and electronic device expenses.

What I like the most are the examples, primarily because they don’t say that you can just pick a percentage and claim that amount of the cost of your phone and internet costs (and why is it alway 80% that taxpayer guess anyway?).

S0 how do we work out the deduction for the calls and data on or phones and devices? According to this Statement…

Taxpayer’s can calculate their device usage expenses by:

  • keeping records and written evidence to determine their work-related proportion of actual expenses, or
  • claiming up to $50 in total for all device usage charges (being phone calls, text messages and internet use for all devices) with limited documentation. This approach is appropriate where their device usage is incidental.

There are two options, being only claim $50 for the year and no more or have written evidence and records to justify the claim above $50 – no “I just estimated a percentage” allowed!

Have a look at this example.

Example  internet expenses – time basis

Ben is an employee IT technician who generally works from home three days per week (eight hours per day). In order for Ben to log on to his employer’s network he is required to use his personal home internet connection. This expense is not reimbursed by Ben’s employer.

Considering Ben’s usage is more than incidental he decides to calculate his actual expenses incurred using the ‘time basis’ method.

Ben has determined his time using the internet for work over a representative four-week period as 96 hours (24 hours per week). However, to determine his time using the internet for non-work purposes Ben considers all of the private devices that use the internet connection. This includes his:

  • gaming console for online gaming
  • smart TV for streaming television and movies, and
  • mobile phone to browse the internet.

Ben estimates that he is directly or indirectly (for example, automatic updating) using the internet connection in relation to these devices for four hours per weekday and 16 hours on the weekend. This equates to 144 hours over a representative four- week period. Based on this analysis, Ben is using the internet for a total of 240 hours in a four- week period, of which 96 hours, or 40%, is work-related.

Ben’s wife also uses the internet connection for a similar period of time – that is, 144 hours over a representative four-week period. In this situation, the internet connection is used for a total of 384 hours in a four-week period, of which 96 hours, or 25%, is Ben’s work-related portion.

Internet expenses = 25% of monthly expenses ($60) x 11 months (taking into account Ben’s four weeks annual leave) = $165.00

Either claim $50 or keep a time record of all the use of you and your family of the internet. And to be clear, “but I have to have a connection for work” does not mean you get a 100% deduction.

And a similar but easier analysis is needed for home office expenses. However, you only need work hours.

Example – home office running expenses

Betty is an employee accountant working for a city-based firm that expects her to complete a specified amount of work each day. In order to achieve this, Betty has elected to take some of her work home at night so that she can spend more time with her family. Betty spends an average of two hours per night Monday to Friday working in her home office.

Betty has two options for calculating her home office running expenses. She can calculate the proportion of actual home office running expenses that are work-related, or use the rate of 52 cents per hour. Betty opts to use the rate of 52 cents per hour and keeps a record showing she worked at home for 10 hours per week for 48 weeks in the year. Her deduction is calculated as:

Running expenses = 52c per hour x 10 hours per week x 48 weeks = $249.60

So you should track the time you work from home.

Advertisements

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.
This entry was posted in Uncategorized. Bookmark the permalink.

1 Response to Proving deductions for home office expenses, mobile phones and internet

  1. This makes a lot of sense. Thanks Ken. Just quickly, do you think timesheet records filed with an employer would be sufficient evidence, so long as they were annotated to clearly indicate hours worked from home?

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s