31 Jul Update: Claiming COVID-19 Expenses
With COVID-19 sending the world home into lockdown, home offices have been given a new meaning, (in all matters of the word). Whether you’ve had to turn your couch into an office and your kitchen table into a ‘meetings only zone’, it seems the government is taking notice. Before we were compressed to our homes, taxpayer’s household bills were considered private and not deductible according to S.8-1. But now, thanks to COVID-19, household expenses can now be deducted. Here’s how.
Which ‘home office’ category are you?
There are two categories which the government recognises that at home, work-related expenses are eligible for deductions:
A portion of occupancy expenses – (mortgage interest, council rates, rent, building insurance)
However, this is only applicable if your home resembles a ‘place of business’.
Additional running expenses – this includes electricity, gas, cleaning, and depreciation of furniture and office equipment. So if you’re wearing down your favourite ‘home’ office chair, you can now claim it! This category is applicable regardless if your home resembles a ‘place of business’ or not.
The New Method – 80c per hour
The ATO has put together a new, temporary method that offers a short-cut option for businesses to claim expenses since conducting their work from home, during the time period of 1 March 2020 – 30 June 2020. Here’s how the new method will work.
The ATO is allowing individuals to claim 80 cents per hour for all running expenses that fall within 1 March – 30 June 2020 time frame. These expenses must of course be work-related and genuine employment responsibilities carried out in your home to be eligible. When using the shortcut method to claim in your 2019-2020 or 2020-2021 tax return, be sure to include in the description section as ‘COVID-hourly rate’.
What you can claim
- Electricity – (heating, cooling, electronics used or work, gas expenses)
- Depreciation of home office furniture and furnishings
- Cleaning expenses
- Phone expenses and the depreciation of handset
- Internet expenses
- Computer consumables
- Depreciation of computer, laptop, and similar devices
Again, you don’t need to have a designated ‘office space’ in order to claim these items with the 80 cents per hour method. This new method is an alternative method used additionally to the existing methods.
Extending the asset write-off
As of 19 June 2020, a Bill was amended, allowing businesses the opportunity to deduct the costs of depreciable assets.
- Business with aggregated turnover for the income year of less than $500 million
- Asset must cost less than a threshold of $150,000
- Asset must be first used or installed ready for use for taxable purpose by 31 December 2020
- Allows larger business (aggregated turnover for the income year of $10 million, or more or less than $500 million) that is using a substituted accounting period to access the $150,000 for an asset first used or installed ready to use by 12 March 2020 – 31 December 2020
By extending this date, it allows businesses additional time to:
- Access the $150,000 instant asset write-off for their investments
- Extends cash flow support to COVID affected businesses (National Tax and Accountants’ Association Ltd, 2020)
Division 7A – What you need to know
What a relief that the ATO understands that some repayments just won’t happen in time, as borrowers have been faced with some unforeseen circumstances this year. Thankfully, while borrowers would have previously been faced with repaying their minimum yearly repayment (MYR), the ATO have extended the repayment period. Yes, you heard that right. Relax, now you can breathe a little.
How to request an extension
If you’ve been affected by COVID, and need more time to make the MYR, you can apply for an extension by simply completing an online application. It’s that easy. All you need to do is:
- Confirm your shortfall
- State that the pandemic has affected you
- And that you’re unable to make the MYR as a result of COVID