What This Resource is AboutWhen 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:
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 DeductibilityEvidence 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:
Taxpayers can prove their deductible (work) use proportion by:
Special Rules for Home Office Running ExpensesTaxpayers can calculate their home office running expenses by:
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 expensesBetty 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:
Running expenses52c per hour for 10 hours per week for 48 weeks$249.60
Special Rules for Device Usage ExpensesTaxpayers can calculate their device usage expenses by:
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's deduction is calculated as:
Internet expenses40% of monthly expenses ($60) for 11 months
(taking into account Ben's four weeks annual leave)$264.00
Example 3: internet expenses – apportion for other usersFollowing 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:
Internet expenses25% of monthly expenses ($60) for 11 months
(taking into account Ben's four weeks annual leave)$165.00
Apportioning Bundled ExpensesTelephony, 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: