What This Resource is About
When ATO officers are reviewing claims for home office running expenses and electronic device expenses, there is a need to establish that expenditure has been incurred, and the extent of deductibility. This summary of the ATO practice statement concerns acceptable verification approaches for:
Pre-requisites for deductions include the conditions that:
If the taxpayer uses their home office or device for work purposes and private purposes, only the expense related to the work usage can be claimed as a deduction (see section 4 of this practice statement).
In effect, a taxpayer can claim a deduction for the ‘additional’ expenses they incur, because they can establish that they incur these additional expenses as a result of their income-producing activities. Heating, cooling and lighting expenses are only available where the taxpayer exclusively uses these services while they work from home. This means, for example, that a taxpayer working on their laptop whilst sitting on their couch next to their partner who is watching TV will have no additional expenditure on heating, cooling or lighting, but they may have some computer, phone or internet expenses which are work related.
Evidencing Expenditure (Incurred)
Invoices in the name of the home owner or service recipient represent evidence that an expense has been incurred. An expense in the name of one person can be apportioned to others where the circumstances are relevant. For example, this can include family circumstances such as a husband and wife, or where two unrelated parties share accommodation and both contribute to the cost of expenses jointly.
Where invoices are not available, corroborating evidence may be accepted to demonstrate the expense has been incurred.
The level of evidence required to establish that an expense has been incurred is less than that required to substantiate the expense. This means bank and credit card statements may be acceptable to establish that a taxpayer has incurred an expense. For example, a bank statement in the taxpayer’s name clearly showing a payment to a gas provider will be acceptable evidence to establish that a gas expense has been incurred.
Extent of Deductibility
Evidence is required to demonstrate how the taxpayer has calculated their deduction based on a proportion of the total expense incurred. In apportioning the expense, taxpayers need to factor in the extent to which:
For example, if the taxpayer uses a separate room in their home as a home office to undertake work from home, and their spouse and three teenage children also use the room to work and study, the spouse and children’s usage of the home office will need to be factored in to the calculation to determine the proportion of the taxpayer’s claim for a deduction.
Taxpayers can prove their deductible (work) use proportion by:
A taxpayer can only use a representative period if they have one. This means that their work use proportion is constant throughout the year. When using a representative four-week period, a taxpayer multiplies the result over the amount of their working year. For example, if a taxpayer worked all year and there are 13 four-week periods in the year, they would keep records for one four-week period and multiply the result by 13 to get the annual amount. But if the taxpayer took a holiday during the year, and there are only 10 four-week periods for which they worked, they would only multiply the result by 10 to get the annual amount.
Special Rules for Home Office Running Expenses
Taxpayers can calculate their home office running expenses by:
Taxpayers who use the rate per hour method to claim a deduction for home office running expenses only need to keep a record to show how many hours they work from home. They can do this over the course of the year, or if their work from home hours are regular and constant, by keeping a record for a representative four-week period.
This method incorporates all of the items that a taxpayer can claim as a home office running expense including lighting, heating, cooling, cleaning costs, and decline in value of home office items such as furniture and furnishings in the area used for work.
Example 1: home office running expenses
Betty is an employee accountant working for a city-based firm that expects her to complete a specified amount of work each day. In order to achieve this, Betty has elected to take some of her work home at night so that she can spend more time with her family. Betty spends an average of two hours per night Monday to Friday working in her home office.
Betty has two options for calculating her home office running expenses. She can calculate the proportion of actual home office running expenses that are work-related or use the rate of 52 cents per hour. Betty opts to use the rate of 52 cents per hour and keeps a record showing she worked at home for 10 hours per week for 48 weeks in the year. Her deduction is calculated as:
Special Rules for Device Usage Expenses
Taxpayers can calculate their device usage expenses by:
Taxpayers who use the actual expenses method to claim a deduction for their device usage expenses (either for the year or a representative four-week period as set out in sections 3 or 4 of this practice statement) can apply the following to assist with their calculation:
Taxpayers using the $50 method can keep basic records to show how they arrived at their claim without keeping detailed written evidence. They can base their records on the following:
Example 2: internet expenses – sole user – time basis
Ben is an employee IT technician who generally works from home three days per week (eight hours per day). In order for Ben to log on to his employer’s network he is required to use his personal home internet connection. This expense is not reimbursed by Ben’s employer.
Considering Ben’s usage is more than incidental he decides to calculate his actual expenses incurred using the ‘time basis’ method.
Ben has determined his time using the internet for work over a representative four-week period as 96 hours (24 hours per week). However, to determine his time using the internet for non-work purposes Ben considers all of the private devices that use the internet connection. This includes his:
Ben estimates that he is directly or indirectly (for example, automatic updating) using the internet connection in relation to these devices for four hours per weekday and 16 hours on the weekend. This equates to 144 hours over a representative four- week period. Based on this analysis, Ben is using the internet for a total of 240 hours in a four- week period, of which 96 hours, or 40%, is work-related.
Ben’s deduction is calculated as:
Example 3: internet expenses – apportion for other users
Following on from Example 2, assume Ben’s wife also uses the internet connection for a similar period of time – that is, 144 hours over a representative four-week period. In this situation, the internet connection is used for a total of 384 hours in a four-week period, of which 96 hours, or 25%, is Ben’s work-related portion.
Ben’s deduction is calculated as:
Apportioning Bundled Expenses
Telephony, internet and related services products are often combined into one product, being ‘bundled’ in various ways. Taxpayers may use such components in different ways, for example, private use for one component but work-related use for another.
Accordingly, the cost of ‘bundled’ services may need to be apportioned discretely. Cost components can include elements such as internet or voice service, device purchase cost, or other periodic or specific services or purchases. In order to appropriately match work-related use to particular costs, an apportion¬ment of the cost of any bundled components can be separated as follows:
Example 4: bundled expenses
An internet service provider offers an internet and home phone service for $100 per month. If these services were provided separately (unbundled) by the same service provider they would cost $80 and $40 respectively, being a total cost of $120 per month. The discount applying to the bundle is therefore 16% ($20 ÷ $120). It is reasonable to apply the bundle discount to each unbundled component cost. Therefore, if the unbundled phone service would cost $40 per month, the bundled phone service can be assumed to cost $40 − (40 × 16%) = $33.60. If the taxpayer uses the internet privately and uses the phone service 50% for work-related purposes, then $16.80 ($0 internet and 50% of $34) is deductible.
ICB Ebrief 220319