This method is temporary and can only be used to work out your deduction for work from home expenses:
between 1 March to 30 June 2020 in the 2019–20 income year
for the 2020–21 and 2021–22 income years.
The shortcut method ends on 30 June 2022. To continue to claim deductions for working from home expenses after 30 June 2022 you will need to use either the:
You will need to meet the eligibility and record-keeping requirements for the method you choose to use.
Eligibility
You can use this method if you:
worked from home and incurred some additional running expenses as a result
have a record of the number of hours you worked from home.
How it works
The temporary shortcut method simplifies how you calculate your deduction for working from home expenses.
Using this method, you:
can claim 80 cents per hour for each hour you work from home
can’t claim any other expenses for working from home, even if you bought new equipment.
The shortcut method covers all your working from home expenses, such as:
phone expenses
internet expenses
the decline in value of equipment and furniture
electricity and gas for heating, cooling and lighting.
The shortcut method includes decline in value of all items. If you choose to use this method there is no requirement to separately calculate the decline in value of equipment or depreciating assets or any other working from home expense.
However, as you may need to use a different method to work out your working from home deduction in later years it’s important to keep the:
receipts for depreciating assets or equipment you use when working from home
records of how you calculated your work-related use of the asset
your decline in value calculations.
Record keeping for the shortcut method
You must have a record of the hours you worked from home, for example, a timesheet, roster or diary.
Once you calculate your deduction, enter the amount at ‘Other work-related expenses‘ in your tax return. Include in the description ‘COVID-19 hourly rate’.
Employers please note, if you intend to claim a tax deduction in 2020/21 for your employees’ June 2021 quarter super contributions, please ensure you make the payment as soon as possible and by no later than 16 June 2021 so as to allow at least 2 weeks for the contributions to be processed through the superannuation clearing house and allocated to your employee’s super accounts.
Otherwise please ensure the contributions are made by mid-July to ensure you meet the due date deadline of 28 July 2021.
Please note: Employers should turn their attention to managing the superannuation guarantee (SG) increase which comes into effect 1 July. Read more »
Personal Contributions
If you are seeking to maximise your personal contributions in 2020/21, please carefully review the limits and information provided below. As there will be an increase in the contribution limits taking effect from 1 July 2021, these are also noted below for planning purposes.
Financial Year
Concessional Cap
Non-concessional Cap1
(Employer / Salary Sacrifice Personal Deductible)
(Personal After Tax & Subject to Total Super Balance <$1.6m)
2020/21
$25,000
$100,000
2021/22
$27,500
$110,000
Your contributions must be received in your Fund on or before30 June 2021 — the reasons are twofold to ensure that:
you are eligible to claim a deduction in 2020/21 for any personal concessional contributions made;
the contribution is counted against your limit for the correct year.
We suggest you make your contributions as soon as possible and by no later than 16 June 2021 so as to allow at least 2 weeks for the contributions to be processed and allocated to your account, particularly as super fund administrators are extremely busy at this time of year.
Be sure to check the amount of actual contributions already received / due to be received in your super fund before making any top up contributions.
If making tax deductible personal contributions, please ensure you submit a Notice of Intention to Claim a Deduction for Super Contributions form to your fund as soon as possible and check to ensure they issue you with an Acknowledgement of Receipt notice. You cannot claim a tax deduction without this receipt from your fund.
(1) Regarding the non-concessional cap, you may be eligible to ‘bring forward’ up to 3 years of contributions in 2020/21 if you were under age 65 on 1 July 2020 and meet certain criteria:
Total Super Balance as at 30 June 2020
Age <65 on 1 July 2020
Age 67-74
Maximum contribution allowable
Your total super balance is the combined total of all balances in super funds of which you are a member
No work test required for a person aged <67 at time of making the contribution
Work test is required
Less than $1.4m
$300,000
$100,000
Greater than $1.4m but less than $1.5m
$200,000
$100,000
Greater than $1.5m but less than $1.6m
$100,000
$100,000
Greater than $1.6m
$0
$0
This leaves us with an odd situation for those age 65-67 to be mindful of during 2020-21. For example Susan is retired, recently turned 65 and has a super balance of $650,000. She has inherited some money and would like to contribute $250,000 to her super fund before 30 June 2021. She is able to contribute the whole amount using the bring forward limit of $300,000 because she was age 64 at the start of the 2020/21 financial year.
Susan’s sister Jane, who is age 66, still working part-time and has a super balance of $800,000 would also like to contribute $250,000 to her super fund before 30 June 2021. Jane is only able to contribute $100,000 as she was not age 64 at the start of the 2020/21 financial year. Jane will be able to contribute a further $110,000 in 2021/22 and the balance of $40,000 in the following year.
Please note for planning purposes that the bring forward thresholds will change with effect for the 2021/22 financial year. These changes are noted in the following table below. Further, with the recent budget announcement, yet to be legislated, further changes will take effect for the 2022/23 financial year whereby the work test will be abolished and any person under the age of 75 will be able to make use of the bring forward thresholds pursuant to the table below.
Total Super Balance as at 30 June 2021
Age <65 on 1 July 2021
Age 67-74
Maximum contribution allowable
Your total super balance is the combined total of all balances in super funds of which you are a member
No work test required for a person aged <67 at time of making the contribution
Work test is required
Less than $1.48m
$330,000
$110,000
Greater than $1.48m but less than $1.59m
$220,000
$110,000
Greater than $1.59m but less than $1.7m
$110,000
$110,000
Greater than $1.7m
$0
$0
For anyone under age 65 wanting to optimise their super contributions, they may choose to contribute only $100,000 in 2020/21 to enable them to contribute $330,000 in 2021/22, provided all eligibility criteria is met.
Work Test
If you are aged 67 to 74 years, you must satisfy a work test in order to be eligible to contribute to super. To satisfy the work test, you must have worked at least 40 hours in a consecutive 30-day period in the 2020/21 financial year before the super fund is eligible to accept your contribution.
If you are aged 75 or over, your super fund is only able to accept mandated employer contributions (i.e. superannuation guarantee amounts) on your behalf.
As noted above, in the May 2021 Federal Budget, it was proposed that the work test shall be abolished from 1 July 2022 for those aged 67 to 74. This has yet to be legislated.
Government Co-contributions
If you are a low or middle-income earner and make a non-concessional contribution of at least $1,000 to your super fund, the Government may also make a co-contribution up to a maximum of $500. If your total income is equal to or less than the lower threshold of $39,387 for 2020/21 and you make a non-concessional contribution of $1,000, you will receive the maximum co-contribution of $500. You will not receive any co-contribution if your income is equal to or greater than the higher threshold of $54,837 for 2020/21. If your total income is between those thresholds, the payment will be pro-rated. The ATO calculates your total income by adding:
assessable income
reportable fringe benefits total
total reportable super contributions reduced (but not below zero) by any excess concessional contributions
minus:
assessable first home super saver released amount
allowable business deductions.
‘Catch Up’ Contributions
A reminder that these rules commenced on 1 July 2018, therefore we are into the third year of ‘catch up’ contributions whereby a person with a super balance of less than $500,000 as at 30 June 2020 is able to make a personal concessional contribution in 2020/21 equal to the unused amount of the $25,000 limit from 2018/19 and 2019/20.
For example, John had employer contributions of $15,000 for each of 2018/19 and 2019/20. His total superannuation balance at 30 June 2020 was $380,000. If John has higher than normal taxable income in 2020/21, due to say, a capital gain then, in addition to his 2020/21 contributions he can contribute an extra $20,000 as a personal concessional contribution before 30 June 2021 to reduce his taxable income. The extra $20,000 comprises $10,000 in unused contributions from 2018/19 and from 2019/20.
Minimum Pension Withdrawals
If you are in pension phase, please check to ensure you have withdrawn your minimum pension for this financial year before 30 June 2021. Where these requirements have not been met your fund will be subject to 15% tax on its pension asset investment earnings, rather than being tax-free.
Please note, in March 2020 the Government halved the minimum annual payment required for a number of superannuation income streams, including account based pensions for the 2019/20 and 2020/21 financial years. Then on 29 May 2021, the Government extended the 50% reduction on pension minimum withdrawals for the 2021/22 financial year as well.
For our SMSF clients, please contact us if you are not sure of your minimum pension requirement for 2020/21.
Disclaimer: This article contains general advice only and has been prepared without taking into account particular objectives, financial circumstances and needs. The information provided is not a substitute for legal, tax and financial product advice. Before making any decision based on this information, you should assess its relevance to your individual circumstances. The information provided in this newsletter is objectively ascertainable and therefore does not constitute financial product advice. If you require personal advice, please contact us to arrange an appointment with one of our licensed SMSF advisors.
Working from the kitchen bench? Here’s how you sort your tax
With the end of financial year not far ahead, the Australian Taxation Office is reminding taxpayers how best to navigate working-from-home deductions.
The temporary shortcut method has been flagged as a method to consider this tax time.
The working-from-home shortcut method allows claims at the all-inclusive rate of 80 cents per hour, rather than needing to do complex calculations for specific items. It can be claimed by multiple taxpayers living under the same roof and, unlike existing methods, does not require a dedicated work area.
The shortcut method is straightforward; just multiply the hours worked at home by 80 cents.
The only proof required is a record of the number of hours you’ve worked from home, such as a timesheet.
That being said, taxpayers can still claim under the existing arrangements if they choose. If you decide to use an existing method, we encourage you to consult with the team at Allan Hall before you embark and keep good records. Keeping track of each individual expense and calculating the work-related use of each one can be fiddly, so be organised.
Three methods for claiming expenses
To claim any work-related expense, you must have spent the money yourself and not have been reimbursed. The expense must be directly related to earning income (not a private expense), and you must have kept any necessary records (a receipt is best). There are three ways to do this:
Claim a rate of 80 cents per work hour at home for all your working from home expenses — this is the shortcut method
Claim a rate of 52 cents per work hour at home for the heating, cooling, lighting and cleaning of your dedicated work area and the decline in value of office furniture and furnishings. Then calculate the work-related portion of your telephone and internet expenses, computer consumables, stationery and the decline in value of a computer, laptop or similar device, or
Claim the actual work-related portion of all your running expenses, which needs to be calculated on a reasonable basis.
Four no-go expense areas
The ATO has reminded us that if a taxpayer chooses to claim their working from expenses through the fixed rate or actual cost methods, they can’t claim the following:
Personal expenses like coffee, tea and toilet paper. While they might normally be supplied by your employer, they still aren’t directly related to earning your income.
Expenses related to your child’s education such as online learning courses or laptops.
Large expenses up front. Any asset costing over $300 (either in total or per item) such as a computer, can’t be claimed immediately. Instead, these claims should be spread out over a number of years.
Employees generally can’t claim occupancy expenses such as rent, mortgage interest, property insurance, land taxes and rates. Working from home does not mean your home is a place of business for tax purposes. If you claim occupancy expenses, you may have to pay capital gains tax when you sell your home, even if it is your main residence.
More information about working from home is available from ato.gov.au/home or contact Allan Hall’s Tax & Accounting specialists in Brookvale on 02 9981 2300 for specific advice about your circumstances.
