Working from home? These are the deductions you can claim

If you produce assessable income at home, or some of it, and you incur expenses from using that home as your “office” or “workshop”, the ATO will generally allow that a taxpayer could be in a position to be able to claim some expenses and make some deductions. Otherwise the ATO takes the view that expenditure associated with a person’s place of residence is more likely to be of a private nature.

* Generally, an employee who works at home and who does not have a dedicated work area will not be entitled to claim running expenses or their claim for running expenses will be minimal. This is due to the fact that they can only claim the additional running expenses incurred as a result of working from home.

Running expenses

You can generally view running expenses as those costs that result from you using facilities in your home to help run the business or home office, so these would include electricity, gas, phone bills and perhaps cleaning costs. But again, you can only claim a deduction for the amount of usage from the business or home office, not general household expenses.

Using your floor area may be an appropriate way of working out some running expenses. For example, if the floor area of your home office or workshop is 10% of the total area of your home, you can claim 10% of heating costs.

Instead of recording actual expenses for heating, cooling or lighting, it may be easier to use the ATO’s “acceptable” rate for these expenses, which is 52 cents per hour based on actual use or an established pattern of use (from 1 July 2018, it was 45 cents before then).

To use the 52 cents per hour method of claiming, keep a diary to record the amount of time you use your home office for work purposes. The diary must show a representative period of at least four weeks to establish a pattern of use for the whole year.  Remember to always keep these diaries with your tax return paperwork as you may be required to support this deduction should the ATO review your return.

Communications

If you use a phone exclusively for business, you can claim a deduction for the phone rental and calls, but not the cost of installing the phone. If you use a phone for both business and private calls, you can claim a deduction for business calls (including from mobile phones) and part of the rental costs.

If you have a bundled phone and internet plan, you need to identify your work use for each service over a four-week representative period during the income year. This will allow you to determine your pattern of work use which can then be applied to the full year.

A reasonable basis to work out your work-related internet use could include:

• the amount of data downloaded for work as a percentage of the total data downloaded by all members of your household;
• any additional costs incurred as a result of your work-related use – eg if your work-related use results in you exceeding your monthly cap.

Decline in value

There are deductions available for a “decline in value” (depreciation) of items such as electrical tools, desks, computers and other electronic devices, as well as for desk, chairs and so on.

If you use your depreciating asset solely for business purposes, you can claim a full deduction for the decline in value (generally over its “effective life”). Remember however that if you qualify as a small business you could immediately write off most depreciating assets that cost less than $25,000. However, if you also use the depreciating asset for non-business purposes, you must reduce the deduction for decline in value by an amount that reflects this non-business use. Talk to this office for more information about claiming depreciation expenses.

Deductions for occupancy

Occupancy expenses can only be claimed if you are using your home as a place of business, not just conveniently working from home as a salaried employee.  This means that the ATO expects you to have an area of your home set aside exclusively for business purposes. Occupancy expenses are those expenses you pay to own, rent or use your home. These include:

• rent, or mortgage interest
• council rates
• land taxes
• house insurance premiums

You can generally claim the same percentage of occupancy expenses as the percentage area of your home that is used to make income, and again one common way to work this out is to use the floor area put aside for work as a proportion of the floor area of your home as a whole (as can be used for some running expenses, as mentioned above).

Note that where you are running a business from home rather than having a home office you can opt to claim occupancy expenses, such as mortgage interest. However, you’ll be expected to account for any capital gain attributable to the business area of the home when you sell the house. Generally, the family home is exempt from capital gains tax (CGT), but if you’ve carried on a business based on the above, that portion of the home attributable to the business activity will be subject to CGT.

• Twitter
• Facebook

What options do you have if you disagree with the ATO’s notice of assessment?

You are permitted to object against an ATO’s assessment of your tax position if you disagree with the result.

Once you have thoroughly reviewed the ATO’s notice of assessment and believe it to be incorrect, the first step of action is straight forward and relatively informal.

If you believe the details to be inaccurate, please contact us to review your assessment. If after our review, we confirm that the assessment is incorrect, or if you can provide us with additional information that may change your position, we can lodge an amended income tax return with the ATO.

If the ATO disagrees to your amended assessment, we can then lodge an objection on your behalf (advising why we do not agree with the ATO’s disagreement). We can also lodge an objection if the ATO amends an assessment and has taken a different stance to us on particular items, such as, if we believed you were eligible to claim a full deduction but were allowed only part of it.

Objections are required to be made in writing and to include all the details regarding each decision we believe to be incorrect. The objection also includes where appropriate, references to legislation, rulings and/or case law examples. Any additional documents and information supporting the objection would also be included with the submission to the ATO.

From here an ATO case officer is assigned to the objection who will review the original decision made by the ATO, for objectivity the case officer is generally not involved in the original decision. We will then be informed of the outcome in writing (referred to as an “objection decision”).  If you are again, still not satisfied with the decision, the next step is to request for an independent external review of the ATO’s actions and its decision in relation to your tax assessment.

The independent external review can often be a costly process depending on the complexity and length of the review, so you need to consider the value of taking this next step.

Tax laws specifically give you the right to go to the Administrative Appeals Tribunal (the tribunal) or the Federal Court of Australia for a review of the ATO’s actions and/or decisions. When the ATO advices of its objection decision, they will also explain how these independent external review options differ. You will then have 60 days from the date of this decision notice to seek a tribunal or court review.

When taking up the tribunal or court route option the burden of proof is on the taxpayer, not the ATO. You will need to go into the tribunal or court hearing able to prove that your view of the tax outcome is the correct one, and support this view with evidence, documents, and comprehensive technical analysis (which GeersSullivan can assist with).

The tribunal is slightly more informal than a court hearing, however, it’s powers are still substantial enough. It can confirm, vary or set aside the ATO assessment. You can represent yourself or be represented by lawyer, and there is an application fee, which would be refunded if the hearing goes your way. Again, if you are not satisfied with the tribunal’s decision you can then appeal to the Federal Court.

From here things become a lot more formal at the Federal Court level. You will generally require legal representation and there are a lot more fees (filing fee, “setting down” fee and daily hearing fee, as examples). That being the case you want to be sure the claim is worth pursuing.

After this level of intervention, the next steps up the legal ladder are the Full Federal Court and then the High Court – but these are rare options for most taxpayers, on top which these courts will not grant every appeal that is requested.

If you do not agree with your ATO notice of assessment or have any questions in relation to an ATO assessment, please contact our office on (08) 9316 7000.

• Twitter
• Facebook