ITRs Home Office Expenses


If you perform some of your work from your home office, you may be able to claim a deduction for the costs you incur in running your home office, even if the room is not set aside solely for work-related purposes

 

COVID-19 IMPACT - NEW ARRANGEMENTS

The Australian Taxation Office (ATO) has announced special arrangements this year due to COVID-19 to make it easier for people to claim deductions for working from home. The new arrangements will allow people to claim a rate of 80 cents per hour for all their running expenses, rather than needing to calculate costs for specific running expenses.

 

Multiple people living in the same house can claim this new rate. For example, a couple living together could each individually claim the 80 cents per hour rate. The requirement to have a dedicated work from home area has also been removed.

 

This new shortcut arrangement does not prohibit people from making a working from home claim under existing arrangements, where you calculate all or part of your running expenses.

 

Claims for working from home expenses prior to 1 March 2020 cannot be calculated using the shortcut method, and must use the pre-existing working from home approach and requirements.

 

The ATO will review the special arrangement for the next financial year as the COVID-19 situation progresses.

 

WORKING FROM HOME CLAIMS FOR 1 MARCH TO 30 JUNE

 

There are three ways that you can choose to calculate your additional running expenses for the 1 March – 30 June period: 

  • claim a rate of 80 cents per work hour for all additional running expenses.
  • claim a rate of 52 cents per work hour for heating, cooling, lighting, cleaning and the decline in value of office furniture, plus calculate the work-related portion of your phone and internet expenses, computer consumables, stationery and the decline in value of a computer, laptop or similar device
  • claim the actual work-related portion of all your running expenses, which you need to calculate on a reasonable basis.

The ATO has stated that the three golden rules for deductions still apply. Taxpayers must have spent the money themselves and not have been reimbursed, the claim must be directly related to earning income, and there must be a record to substantiate the claim.


WORKING FROM HOME BEFORE 1 MARCH 2020  

Claims for working from home expenses prior to 1 March 2020 should be calculated using the existing approaches and are subject to the existing requirements.

 

RUNNING EXPENSES

A deduction can be claimed for home office running expenses comprising of electricity, gas and depreciation of office furniture (e.g. desk, tables, chairs, cabinets, shelves, professional library) in the amount of:

·         The actual expenses incurred; or
·         52 cents per hour 

Like making a motor vehicle claim, diary/logbook evidence should be maintained for a 4-week period to establish a pattern of working from home and justify the number of hours you are claiming.

No deduction is allowed where no additional costs are incurred e.g. you work in a room where others are watching TV, or the income producing use of the home is incidental e.g. 52c per hour would not be allowed for a fax machine permanently left on to receive documents. 

You will need receipts for:  

·         home office equipment used for work purposes

·         repairs relating specifically to home office/furniture and equipment used for work purposes

·         cleaning expenses of home office

·         any other day-to-day running expenses for the home office

·         diary entries to record your small expenses ($10 or less) totalling no more than $200 

TELEPHONE (INC. MOBILES) + INTERNET COSTS 

If work or business calls can be identified from an itemised telephone account, then the deduction can be claimed for the work or business-related portion of the telephone account. A representative four-week period will be accepted as establishing a pattern of internet and telephone use for the entire year.

 

Telephone rental expense may be partly deductible if you are "on call" or required to contact your employer or client on a regular basis.

 

DEPRECIATION ON EQUIPMENT

 

Depreciation on home office equipment including office furniture, carpets, computer, printer, photocopier, scanners, modem etc. used only partly for work or business purposes can be apportioned.

 

The claim is based on a diary record of the income related and non-income related use covering a representative four-week period.  The diary needs to show:

  • The nature of each use of the equipment
  • Whether that use was for an income producing or non-income producing purpose
  • The period for which is was used

 

OCCUPANCY EXPENSES

 

Claims for occupancy expenses are allowed only if the home is used as a place of business. Occupancy expenses include rent, mortgage interest, water rates, repairs, house insurance premiums.

 

The claim can be made as an apportionment of total expenses incurred on a floor area basis.

 

Warning: Being able to claim theses expenses may affect your 'main residence exemption' for capital gains tax purposes if you sell your house in the future.

 

WHEN IS A HOME A PLACE OF BUSINESS?

 

The following factors, none of which is necessarily conclusive on its own, may indicate whether, or not, an area set aside has the characteristics of a place of business:

 

  • the area is clearly identifiable as a place of business
  • the area is not readily suitable or adaptable for use for private or domestic purposes in association with the home generally
  • the area is used exclusively, or almost exclusively, for carrying on a business, or
  • the area is used regularly for client or customer visits.  

If you use your home to carry out income producing activities as a matter of convenience, you are not entitled to a deduction for occupancy expenses. It would be rare for an employee to be able to claim occupancy expenses.

 

WHAT NEXT ?

For further information and expert assistance to prepare your tax return and maximise your tax refund, contact our office today!

 

This article is provided as general information only and does not consider your specific situation, objectives or needs. It does not represent accounting advice upon which any person may act. Implementation and suitability requires a detailed analysis of your specific circumstances. 

From 1 July 2020, parents accessing the Government's parental leave pay (PPL) scheme will have greater flexibility and options. Targeting the self-employed and small business owners, the changes introduce a new 30 day flexible paid parental leave pay period. Previously, new parents could apply for PPL for a continuous block of up to 18 weeks.

The changes split this time period into two:
• A continuous period of up to 12 weeks, and
• 30 flexible days. Parents can take the 18 weeks in one block or, under the new rules, take the 12 week period and then use the additional 30 days at a period and in a way that suits them but before the child turns 2 years of age.

For example, assume that when Jane, who works five days per week, has a child, she initially claims 12 weeks. Jane returns to work part-time for three days per week. In that case, Jane would apply for paid parental leave pay on the two days per week that she is not working. The administration of the PPL will change in some scenarios.

For Jane's case above, the employer would administer the scheme for the first 12 weeks but then the Government would directly pay Jane for her flexible days. If an employee wishes to access flexible parental leave pay, they will need to negotiate time-off work or a part time return to work with their employer. If the employer is unable to accommodate the request, then the employee may take the 18 weeks as one block.

The changes to the paid parental leave scheme apply to babies born on or after 1 July 2020. The scheme commences from 1 April 2020 to give parents applying for leave the flexibility to use the new arrangements (but only if their child is born on or after 1 July 2020).



The Stimulus Package: What You Need To Know

The Government has announced a $17.6 billion investment package to support the economy as we brace for the impact of the coronavirus.

 

The yet to be legislated four part package focuses on business investment, sustaining employers and driving cash into the economy.

 

For business

  1. Business investment
    • Increase and extension of the instant asset write-off
    • Accelerated depreciation deductions
  1. Cash flow assistance for small and medium sized business 
    • Tax-free payments up to $25,000 for employers
    • Wage subsidy of up to 50% of an apprentice or trainee wage
  1. Targeted support for severely affected sectors, regions and communities

 

For individuals

  1. Household stimulus payments to drive cash into the economy
    • Tax-free $750 payment to social welfare recipients

 

Parliament sits on 23 March. The Prime Minister has stated, "we have no plans to change the parliamentary sitting schedule."

 

Here's what we know so far:

Business investment

Increase and extension of the instant asset write-off

From 12 March 2020, the instant asset write-off threshold will increase from $30,000 to $150,000, and access to the write-off will be expanded to include businesses with aggregated annual turnover of less than $500 million until 30 June 2020.

 

The instant asset write-off is a tax deduction that reduces the tax liability of your business. It enables your business to claim an upfront deduction for depreciating assets in the year the asset was purchased and used (or installed ready to use). For example, if your business is a base rate entity (turnover under $50m) in a company structure you will get back 27.5% in your 2019-20 company return if the company acquires an asset that is used by 30 June 2020. If your business is likely to make a tax loss for the year, then the instant asset write-off is unlikely to provide a short-term benefit to you.

 

This is the fourth increase or extension to the instant asset write-off and businesses will need to be wary of what they are claiming and when: 

 

Instant asset write-off thresholds

Small Business*

Medium business**

Large business***

1 July 2018 - 28 January 2019

$20,000

-

-

29 January - 2 April

$25,000

-

-

2 April - 12 March 2020

$30,000

$30,000

-

12 March - 30 June 2020

$150,000

$150,000

$150,000

* aggregated turnover under $10 million

** aggregated turnover under $50 million

***aggregated turnover under $500 million

 

Assets will need to be used or installed ready for use from when the changes were announced on 12 March 2020 until by 30 June 2020 to qualify for the higher threshold. Anything previously purchased does not qualify for the higher rate but may qualify for one of the other thresholds. Similarly, anything purchased but not installed ready for use by 30 June 2020 will not qualify.

 

The instant asset write-off only applies to certain depreciable assets such as a concrete tank for a builder, a tractor for a farming business, and a truck for a delivery business. You will also need ensure that there is a relationship between the asset purchased by the business and how the business generates income. You can't for example just go and purchase multiple television sets if they have no relevance to your business.

 

There are some assets that don't qualify such as horticultural plants, capital works (building construction costs etc.), assets leased to another party on a depreciating asset lease, etc.

 

What businesses can access the instant asset write-off

To access the instant asset write-off, your business needs to be a trading business (the entity buying the assets needs to carry on a business in its own right). It also needs to have an aggregated turnover under $500 million. Aggregated turnover is the annual turnover of the business plus the annual turnover of any "affiliates" or "connected entities". The aggregation rules are there to prevent businesses splitting their activities to access the concessions.  Another entity is connected with you if:

 

  • You control or are controlled by that entity; or
  • Both you and that entity are controlled by the same third entity.

 

Accelerated depreciation deductions

In addition to the increased instant asset write-off rules, accelerated depreciation deductions will apply from 12 March 2020 until 30 June 2021. This will bring forward deductions that would otherwise be claimed in later years.  

 

Businesses with a turnover of less than $500 million will be able to deduct 50% of the cost of the asset in the year of purchase. They can also claim a further deduction in that year by applying the normal depreciation rules to the balance of the asset's cost. This will presumably only be relevant if the business cannot already claim an immediate deduction for the full cost of the asset. 

 

For example, let's assume that a business purchases a new truck for $250,000 (exclusive of GST) in July 2020. In the 2021 tax return the business would claim an upfront deduction of $125,000. The business would also claim a further deduction for the depreciation that would have arisen on the balance of the cost. If the business is a small business entity and using the simplified depreciation rules, this would mean an additional deduction of $18,750 (i.e., 15% x $125,000). The total deduction in the 2021 tax return would be $143,750. Without the introduction of this investment incentive the business would have claimed a deduction of $37,500 (i.e., 15% x $250,000).

 

This incentive will only be available in relation to new assets that are acquired after 12 March 2020 and are first used or installed ready for use by 30 June 2021. It will not apply to second-hand assets or buildings and other capital works expenditure. 

Cash flow assistance for small and medium sized business 

Tax-free payments up to $25,000 for employers

Tax-free cash flow support between $2,000 and $25,000 will be available to eligible businesses with a turnover of less than $50 million that employ staff between 1 January 2020 and 30 June 2020. 

 

This is not a direct cash payment but a credit equal to 50% of the PAYG amounts withheld from salary and wages paid to employees. The employer will need to lodge an activity statement to trigger the entitlement. If the credit puts the business in a refund position the excess amount will be refunded by the ATO within 14 days.

 

If a business pays salary and wages to employees but is not required to withhold any tax then a minimum payment of $2,000 will still be made.

 

Businesses that lodge activity statements on a quarterly basis will be eligible to receive the credit for the quarters ending March 2020 and June 2020. Business that lodge on a monthly basis will be eligible for the credit for the March 2020, April 2020, May 2020 and June 2020 lodgments. The minimum $2,000 payment will be applied to the first lodgement.

 

Eligibility for the measure will be based on prior year turnover. We will have to wait for the legislation for the finer details.

 

Wage subsidy of up to 50% of an apprentice or trainee wage 

Eligible employers can apply for a wage subsidy of 50% of the apprentice's or trainee's wage for up to 9 months from 1 January 2020 to 30 September 2020. The payments are accessible to businesses with less than 20 employees. Employers will receive up to $21,000 per apprentice ($7,000 per quarter).

 

Where a small business is not able to retain an apprentice, the subsidy will be available to a new employer that employs that apprentice. 

 

In order to qualify for this payment the apprentice or trainee must have been in training with the business as at 1 March 2020. Employers of any size and Group Training Organisations that re-engage an eligible out-of-trade apprentice or trainee will also be eligible for the subsidy. 

 

It is expected that employers will be able to register for the subsidy from early April 2020. Final claims for payment must be lodged by 31 December 2020.

Targeted support for severely affected sectors, regions and communities

$1 billion has been committed to support sectors, regions and communities disproportionately affected by the economic impact of the coronavirus. Tourism, agriculture and education are specifically mentioned.

 

Initial measures include:

  1. Waiver of fees and charges for tourism businesses that operate in the Great Barrier Reef Marine Park and Commonwealth National Parks
  2. Additional assistance to help businesses identify alternative export markets or supply chains
  3. Measures to promote domestic tourism

 

Further plans and measures will be developed with the affected industries and communities.

 

Administrative relief for certain tax obligations will also be provided, including deferred tax payments up to four months. The ATO will establish a temporary shop front in Cairns within the next few weeks to support the region's small businesses. Other initiatives to bring support to the communities are being considered. 

 

Household stimulus payments to drive cash into the economy

Tax-free $750 payment to social welfare recipients

A one-off, $750 cash payment will be made to pensioners, social security, veteran and other income support recipients and eligible concession card holders. Payments will be from 31 March 2020 on a progressive basis, 90% are expected to be made by mid-April.

 

The payment will be tax-free and will not count as income for Social Security, Farm Household Allowance and Veteran payments. 

 

There will be one payment per eligible recipient even if they qualify in multiple ways.

 

Casual employees able to access the Newstart 'sickness payment'

While not part of the stimulus package, the Prime Minister has stated that casual employees required to self-isolate or who contract the coronavirus will be eligible for a sickness payment (jobseeker payment) through Newstart. The normal waiting period for this payment will be waived. 

 

We'll bring you more details as soon as they become available.

 

More information:

Lifestyle Assets ATO Audit Target




Lifestyle assets continue to be an ATO audit target

The ATO has revealed it will request a further five years' worth of policy information from over 30 insurance companies
about taxpayers who own marine vessels, thoroughbred horses, fine art, high-value motor vehicles and aircraft.

The ATO expects to receive information about assets owned by around 350,000 taxpayers from 2016 to 2020 as part
of its data-matching program.

This information (provided by insurers) is intended to be used by the ATO as part of its compliance profiling activities.

For example, ATO Deputy Commissioner Deborah Jenkins said:

"If a taxpayer is reporting a taxable income of $70,000 to us but we know they own a three million dollar yacht then
this is likely to raise some red flags."

She clarified that the data will not be used to initiate automated compliance activity.

"Taxpayers selected for compliance activities are identified through other methodologies. The data is made available  
to our compliance teams to support their risk profiling of the selected taxpayers. Existence of an insurance policy may or
may not prompt the compliance officer to pursue a particular line of enquiry."

Aside from helping identify taxpayers who may be understating their income, the data from insurers may be used by the
ATO to identify taxpayers who have made capital gains on the disposal of certain assets but who have not declared this
to the ATO.

It will also be used by the ATO to identify incorrect claims for GST input tax credits where taxpayers are incorrectly claiming 
GST credits as if the (private) item was a business asset.

Additionally, SMSFs the ATO suspects may be acquiring lifestyle assets purely for the personal enjoyment of the fund's trustee
or beneficiaries are also likely to be looked at by the ATO.

Insurers are required to provide the ATO with policy information where the value of assets is equal to or exceeds the following
thresholds:

Marine vessels $100,000
Motor vehicles $65,000
Thoroughbred horses $65,000 
- Fine art $100,000 per item
Aircraft $150,000

Editor: If you feel that you may be targeted by this latest ATO data collection activity and are concerned about the implications,
please feel free to contact our office to discuss your individual circumstances.

Ref: ATO website, 18 December 2019

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