According to the ATO, a record number of claims have been made for expenses incurred whilst working from home.
Reportedly, due to high number of mistakes, errors and questionable claims for home office expenses,the ATO has recently advised that it will be increasing attention, scrutiny and education on these claims this tax time.
Last year, 6.7 million taxpayers claimed a record $7.9 billion in deductions for ‘other work-related expenses’, which includes expenses relating to working from home.
The ATO believes that there is mounting evidence that many taxpayers do not know what they can and cannot claim with regards to additional costs incurred when working from home, and that this has purportedly resulted in amounts being over-claimed or personal costs being claimed.
In particular,the ATO has flagged its specific concerns, such as some taxpayers that are claiming expenses:
- they never paid for;
- expenses that their employer has reimbursed them for;
- private expenses; and/or
- expenses that cannot be substantiated.
Whilst additional costs incurred as a direct result of working from home can legitimately be claimed, care must be taken not to claim private expenses as well.
The ATO has indicated that one of the biggest issues it faces is people claiming the entire amount of expenses (e.g., like their internet or mobile phone), rather than just the portion relating to work.
Provided the taxpayer is able to demonstrate that they have incurred additional costs of running expenses (e.g., electricity for heating, cooling and lighting), then these are generally deductible.
In contrast, employees are generally not able to claim any portion of occupancy-related expenses (e.g., rent, mortgage repayments, property insurance, land taxes and rates).
Taxpayers are warned that the ATO may contact employers to verify expenses claimed for working from home.
According to the ATO, there have been instances where employers were contacted and the ATO has discovered that the taxpayer’s employer has paid for the expenses (either upfront or reimbursed), or that there was actually no need for the taxpayer to work from home at all.
In addition,the ATO expects to disallow a lot of claims where the taxpayer has not kept adequate records to prove that they have legitimately incurred the relevant expense and that the expense was related to their work.
As with the claiming of deductions in general, taxpayers must keep supporting records when claiming work-from-home expenses, which may include receipts, diary entries and itemised phone bills.
Importantly, only the additional work-related portion of the relevant expense is deductible.
Advancement in technology has allowed the ATO to deploy sophisticated systems and analytics to spot claims that are out of the ordinary compared to others in similar occupations, earning similar income.
Finally, the ATO has reminded taxpayers of the “three golden rules” to follow when claiming work-from-home deductions, being:
- the taxpayer must have spent the money themselves and have not been reimbursed;
- the expense must be directly related to earning the taxpayer’s income, not a personal expense; and
- the taxpayer must have a record to prove the expense.
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