Home Office Records You Need To Keep

If your employees work from home, they may be entitled to claim a portion of their home office expenses as deductions against their taxable income. However, they need to be careful not to over-claim — especially this year.

Diary picture from Shutterstock

As we noted earlier in the week, the ATO has said it will be carefully examining any work-related expenses claims, particularly in the areas of overnight travel, transporting bulky tools and equipment, and work-related usage of computers and phones at home. While work-related expenses aren't individually categorised on a personal tax return, any figure that's unusually high relative to other people in the same profession is likely to trigger an audit.

The main area where people go wrong is in claiming the entirety of the cost of a computer or Internet connection or other home office-related expense, rather than just the proportion related to work use. The ATO offers up an example:

A teacher claimed for over 3,000 hours of work-related use of their home office at 34 cents per hour without evidence to support their claim – approximately eight hours every day using their home office for work purposes. No evidence was provided to support the taxpayer's claim, so the claim of over $13,000 was disallowed in full. The taxpayer's claim for internet access, telephone and mobile phone use was also adjusted as the taxpayer did not break down their use between private and work-related use. A diary covering the four week period of use of these items would have been acceptable but no evidence was provided to support their claim. As a result, their claim of $1,250 was disallowed. Finally, the taxpayer claimed for IT equipment and software but did not show how these items were split between private and work-related use. To support the claim the taxpayer was asked to provide estimates of work-related and private use over a four week period but they were unable to provide this information. As a result, their claim of over $9,200 was disallowed in full. In total, the taxpayer's home office expense claims were adjusted by almost $40,000, and they were required to pay almost $17,000 in tax and penalties.

The other mistake to avoid? Claiming for expenses that have been reimbursed. That's a no-no.

The big lesson? If your employees work at home, remind them to keep a diary of what they do. That way, they can reasonably allocate costs — and defend them if they end up being audited.

Reminder: For specific tax advice relating to your individual situation, consult a registered professional.


Comments

    How would this work with IT staff who perform after-hours on-call support? We might not be actively sitting in front of a computer all night long, but need to be ready in case a call comes through.

      Apart from line rental, you aren't being charged to 'wait for the call', and you can be doing other things with your home internet during this time.
      You can allocate a reasonable amount of your phone and internet costs by keeping a diary log of the days you are on call, the amount of hours that is, and the amount of time actually spent on those calls.
      You can then estimate how much of your internet/phone bill to allocate to business expenses and how much to personal use. It is easy enough to do and diary entries will satisfy the tax office.

    Be aware that a good number of the teacher's deductions might have been legitimate but the ATO decided at a whim that they would just reject the whole claim.
    I know several taxpayers living in regional W.A. who have been dealt with unfairly in the last couple of years by the ATO. The ATO appears to be particularly picking on tradespeople like painters, plumbers, handymen and mechanics. These taxpayers are increasingly needing to purchase and carry their own tools because as times become tougher employers are cutting back too - they aren't replacing worn tools or supplying safety equipment (although if asked by the ATO they say that they are). In addition jobs are becoming scarcer as businesses fold and people get laid off and people are having to travel further just to stay employed.
    Rural and regional Australians tend to use Tax Pack because they don't live near accountants and eTax is frustrating to use when your internet ping is 700. But Tax Pack is full of "omissions"- and if a taxpayer trusts TaxPack they're making themselves an ATO target.
    Many regional taxpayers have to travel into the city to get work - this can run up annual fuel bills of $10,000+. Tax Pack gives the following information about car expenses - if you carry bulky tools, save your receipts and you can claim fuel, oil etc as a deduction - because these are expenses in generating your income. Most Tax Pack users take this information at face value. But when you're audited you discover there is a whole lot of FINE PRINT NOT MENTIONED IN TAX PACK -
    It's NOT ENOUGH to carry bulky tools which you genuinely use at work -
    The following conditions NOT mentioned in Tax Pack must also be met or the ATO will make you pay back some or all of the deduction: You must not have anywhere SECURE to store your bulky tools at work. In addition your employer MUST REQUIRE you to bring the tools. In addition YOU MUST HAVE A LETTER FROM YOUR EMPLOYER TO PROVE THAT YOU HAVE TO BRING THE TOOLS AND THERE IS NO WHERE SECURE TO STORE THEM. Getting a letter makes it difficult if you don't know about this requirement because it's not mentioned in Tax Pack and you have fallen out with your employer. In addition there are other "substantiation"conditions and requirements - it's not enough to keep your fuel and oil receipts - the ATO can reject your claim if the receipts you have kept are not legible - and they decide what legible means - and can insist legible means pristine. They don't care if you are a rural taxpayer living it rough in a shed or a caravan and don't have the resources to preserve receipts (like photocopiers, an air-conditioned office, room for a filing metal cabinet etc).
    Or put another way, Tax Pack is a tool used by the ATO to get extra revenue out of taxpayers - in the form of fines, administration fees etc.
    One teenage taxpayer - a newly qualified tradie - kept her fuel receipts, took her tools to work every day because she had nowhere secure to store her tools at work but had her fuel claim disallowed because she didn't have the employer letter. She was disappointed in their decision because as she said - she took her tools to work to use them - not because she thought "hey I can claim a tax deduction if I do this!"
    If someone thinks they are entitled to a deduction based on Tax Pack, then they shouldn't be fined for following Tax Pack's guidelines.
    A young person can't win - one government department pays them a tool allowance to buy tools of trade to take to work to use - then another government department comes along and tells them they cant claim for taking those tools to work and fines them for following TaxPack?
    In the above case - the ATO even disallowed the young tradie's claim for tools and training in D4 and D5. They claimed she had dropped out of her apprenticeship - and in spite of supplying them with multiple documents she couldn't convince them she had completed the third year of her apprenticeship and qualified as a tradie. The documents she supplied the ATO included a copy of her Trade Certificate, a copy of her Certificate IIÍ, a copy of her RTO training results, two newspaper articles which said she was working as a third year apprentice, several other documents which showed she participated in the training she was claiming for and receipts/written evidence for the tools and training.
    In spite of all of these supporting documents her claims were disallowed and she was fined an administration fee of over $1000 and had to pay back the shortfall ($4500). The letter which accompanied the bill stated she has a right of appeal to the decision - but that's clearly not true - because she had already supplied as much substantiation as she possibly could. The right of appeal is farcical.
    While the strategy of dishing out unfair fees and fines might raise revenue in the short term,
    ultimately the government are the big losers by allowing the ATO to behave like this, because when you unfairly fine a person it destroys their work ethic. It destroys the work ethic in their family and friends too. This in turn impacts the long term prosperity of our nation.
    Before this encounter with the ATO this young tradie intended to start her own business and eventually employ apprentices of her own. After this experience she has decided it's just not worth the heartache or paperwork to go into business. She is even contemplating casual work instead of full time work so she has more leisure and pays less or no tax. I'd imagine the teacher feels the same about teaching.
    Australia deserves a shortage of skilled workers and high youth unemployment when it unfairly fines taxpayers. And it will never get out of debt as long as government departments like the ATO keep destroying the work ethic of taxpayers.

      "eTax is frustrating to use when your internet ping is 700"

      AFAIK eTax is offline unless you want to look up additional information not already within the app. It then goes online to submit the completed application.

      Have a look at this:
      http://www.smh.com.au/money/tools-and-guides/tax-objections--appeals-20100531-wqx8.html

      Also contact the local Federal member of parliament.

      All the teacher had to do was keep diary entries for the time spent doing 'work' on the internet and phone, and the deductions would most likely have been allowed.
      If you are a professional, you keep records, and the tax office usually has no problem with the deductions. It is pretty simple.
      Scanning receipts is acceptable by the tax office, and a scanner is less than $50, a reasonable investment for anyone.

      Last edited 15/07/14 3:00 pm

    Hi,
    Just wondering if i start a home business would i benefit from creating a company being its employee with its own eba with sick pay holidays allowances e.g on call etc or is this illegal tia.

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