Top tax return tips for Australians who worked from home during coronavirus

We talk to experts to find a way through the confusion of claiming in Covid-19 times

Photo of hands holding pencil and pressing calculator buttons over documents

Australians can claim a deduction of 80c for each hour worked from home between 1 March and 30 June on their tax returns.
Photograph: Alamy

Tax return time is looking different this year for most, thanks to Covid-19.

Many employees have spent a good portion of this financial year unexpectedly working from home for the first time, supplementing reduced salaried work with side hustles, or finding themselves unemployed and on jobseeker.

Guardian Australia spoke to two financial experts about what you can and should be claiming for this tax season, how to do so, and how to manage financial stress along the way.

How can I claim for expenses I have incurred working from home?

There are three main ways that you can calculate expenses if you have been working from home this year.

The first is the “fixed-rate method”. You can claim a deduction of 52c for each hour you work from home. This covers expenses such as the depreciating value of home office furniture, electricity and gas, and any costs of repairs. It does not include things like phone or internet costs, equipment or stationery.

But acknowledging that many people have been working from home for the first time due to Covid-19, the ATO has introduced a second “temporary shortcut method” for calculating expenses during the pandemic.

You can claim a deduction of 80c for each hour you have worked from home between 1 March and 30 June. If you are claiming for expenses incurred before this, you will need to use the 52c rate.

You have to have a timesheet or log of the hours you worked during this period, excluding any times that you took a break. This “shortcut method” accounts for all deductible running expenses, such as electricity, gas, cleaning, phone and internet costs, printer ink and stationery, and depreciating capital items such as home office furniture.

On the plus side, you don’t have to provide receipts or track your work calls and time spent doing your job via the home internet.

But Saul Markunsky, director of In the Picture chartered accountants and business advisers, warns it is not the most financially rewarding method.

“It’s good if you have nothing specific to claim or no proof of expenses because you can claim without any substantiation other than that you worked that time,” he said.

“But if you work it out, 80c per hour at eight hours a day is $6.40 a day, which is not much if you look at how much you are probably spending on electricity and internet.”

Markunsky recommends the third method: differentiating the items and claiming for them individually.

What expenses can I individually claim for and what proof do I need?

If you are working from home, Markunsky said you should claim for electricity, internet, and mobile or home phone usage.

To claim your phone or internet bill under this method, you have to work out what percentage of their use went towards your work. This can mean you need to keep a log of how much you use your internet for work, or how many of the calls coming in are for work out of the total number of calls received, over a four-week period.

You cannot claim for the cost of your tea, coffee or milk but you can claim for items like home office equipment, including computers, printers, phones, furniture and furnishings, Markunsky said.

If you are a salaried employee and the items cost more than $300, you can only claim for the decline in value of these items.

“Take a laptop: it’s depreciated at 20% per year,” Markunsky said. “So from the date of purchase, it starts getting written off at the tax office at that rate of depreciation.”

“So, for a $1,000 computer, you could claim $200 per year or a portion of it. If you bought it in December, and so only had it for six months before the end of the financial year, you could claim $100 this year and then $200 the following years.”

“You claim the full amount eventually, but at that rate of depreciation over a period of several years.”

But, Markunsky said, if you have been working under your own ABN, you can claim for the full amount as long as it is under $150,000 under the ATO’s instant asset write-off. This includes if you set up a side hustle and became a sole trader since the pandemic started to make ends meet.

That desk you bought at Ikea so you could freelance from home? According to Markunsky, you can probably claim for it and for the trip you took to Ikea to purchase it.

Things become much more complicated, though, if you are working both a salaried job and as a sole trader, and you end up making a loss on your business.

“As a sole trader, if you make a loss on your sole trader business, and you want to claim that loss against your salary income, you have to pass the non-commercial loss rules,” Markunsky warned.

Can I claim rent or mortgage payments?

It depends on whether you rent or own.

If you are renting and have a separate room or space for your home office, you can claim a percentage of your rent based on the number of rooms in your house. So, if you have five rooms including the kitchen and bathroom, and you are using one of those room as a home office, you can claim 20% of your rent.

But, if you own the property, you probably shouldn’t claim mortgage repayments.

“It affects your capital gains tax and the status of your house. Basically, if you start claiming a percentage of your mortgage as a deduction, then a percentage of your property will become taxable when sold,” Markunksy said. “That’s a huge one that people often mess up.”

What do I do if my income changed dramatically thanks to Covid-19 and I’m feeling nervous about tax time?

A financial educator and the author of Money School, Lacey Filipich, said: “There will be a tendency for people to want to avoid tax this year.”

But if you have had tax coming out of your pay throughout the financial year and your income has changed, you probably want to submit your tax return as soon as possible, around mid-July.

“When you do a tax return, the ATO is looking at all your sources of income: work, investments, shares allowances,” Filipich said. “How much you paid in total versus how much you earned.

“So, if you had a drop in income, and you were paying tax earlier in the year, you are more likely to get a big whack of that back [since the total amount you earned during the year is less than what the ATO originally calculated].”

On the other hand, if you are a sole trader, haven’t been paying tax as you go, and fear a hefty tax bill, Filipich recommends waiting to submit your tax return until October – the end of tax return season – to give you more time to get the money together.

Do I need to see an accountant?

Both Filipich and Markunsky recommend getting professional financial advice, especially this year given the changing tax laws and forms of income you might have received, such as jobkeeper and jobseeker.

“You don’t want to get caught out and claim the wrong thing and have the ATO audit you, which is painful and can delay payment,” Filipich said.

“If you are really on the bones of your bum, it’s good to talk to a financial counsellor as they are a free service. They may not have the technical tax background, but if you are really struggling and have the potential to end up with a tax bill, they can negotiate with you.”

The National Debt Helpline and the Wesley Mission are just two of the organisations that provide free financial counselling.

Above all else, Filipich stressed that you want to “get on the front foot with the ATO”.

“The best thing is to talk to the ATO via an accountant,” she said. “The ATO is very understanding at the moment. If you ask if you can please have an exemption or an extension on paying a bill, they recognise that people are super stressed as there is a lot going on. And they are not going to force you to do something as long as you don’t ignore the problem.”

If you do see an accountant or a financial planner, you want to make sure your documents are as organised as possible.

“The accountant can only do what they do with what you give them,” Filipich said. “If you give them an ungodly mess, they will have to spend more time working out the basics and sorting through it as opposed to how to get you the most income.”

If you don’t have a system in place for collecting receipts and keeping track of work-related expenses, Filipich advised spending this tax season putting those into place for next year.

This could mean creating an email folder where you automatically file any receipts emailed to you, taking photos of receipts and filing them on your computer, carrying around a notebook and writing down expenses as they come up, or entering every expense on to a spreadsheet.

“The best thing you can do is manage it progressively.”