Careful consideration, planning and record keeping should be undertaken throughout this financial year in respect of work related home office expenses in order to maximise the deduction at year end.

Examples of WFH deductions you may be able to claim

• Heating, cooling and lighting
• Telephone call and phone rental costs relating to landline and mobile phones
• Internet data costs
• Decline in value of furniture and fittings such as desks, chairs, shelving and cupboards which you use for work-related activity
• Decline in value of office equipment such as computers, laptops, tablets, smart phones and printers which you use for work related activity
• Computer consumables such as printer ink and stationery
• Costs of repairs to home office furniture and fittings
• Home office cleaning expenses.

The rules:

• Expenses incurred must be directly related to work;
• Must have been paid out of own pocket; and
• Cannot have been reimbursed by the employer.

What has changed?

From 1 March 2020 to 30 June 2022, an actual home office is not required in order to claim home office expenses. 

Prior to 1 March 2020, a home office was required to be a designated room or area in the home set aside just for work, not shared by other people and not used for other purposes.

The ATO will now allow home office expenses to be claimed when working from the kitchen table or from a sofa.

Methods to calculate your WFH claim

1. Shortcut method

Using the short cut method, a tax deduction of 80 cents can be claimed for each hour worked from home.

This method covers costs such as:

• Electricity and gas
• Telephone
• Internet
• Decline in value of equipment and furniture.

This method is suitable for those working from home, without a dedicated home office space and making do. 

If there are multiple individuals working from home, each individual can claim 80 cents per hour. This includes both members of a couple living together.

2. Fixed rate method

Using the fixed rate method, a tax deduction of 52 cents can be claimed for each hour worked from home.

This method covers costs such as;

• Electricity and gas
• Decline in value of furniture and fittings
• Repairs to your home office equipment, furniture and furnishings
• Cleaning.

To use this method, you must have a dedicated workspace in your home. 

After claiming using the fixed rate, a claim for telephone, internet and decline in value of technology items, stationery and computer consumables can also be made.

3. Actual cost method for home expenses

Using the actual expenses method, the claim is calculated by calculating the actual expenses incurred to produce income when working from home.

This may include the following expenses:

• Electricity and gas
• Decline in value of furniture and fittings
• Decline in value of decline in value of telephones, computers, laptops or similar devices
• Phone expenses
• Internet expenses
• Cleaning
• Computer consumables and stationery.

For example, any electricity costs claimed will need to be calculated by looking at the cost per per kilowatt of power and the number of hours used for work related purposes. Similarly, telephone expenses bills will need to be itemised. Calls and data incurred specifically for work related purposes will need to be summarised.

Common mistakes made when calculating WFH claims

• Not apportioning shared bills.  Mistakenly individuals often claim the entire monthly bill even though the cost of that bill is shared with others.  For example, if the monthly internet bill is $100 and it is shared by two individuals, the claim is then $50 per individual and not the full $100
• Not having a good understanding how the depreciation rules work.  Assets purchased such as desks, chairs, filing cabinets, computers and printers have different “working lives” therefore, specific depreciation rates should be applied
• Claiming home office expenses when there is not a dedicated room or office in your home
• Claiming a too high a work-related proportion for a particular type of expense.  For example; the personal use of telephone or internet should not be claimed
• Not keeping appropriate records to substantiate the expense
• Not making a WFH claim when you are entitled to .80 cents per hour. This adds up.

What should you do prior to year end in order to maximise WFH claims

• Keep record of the number of hours worked from home each week over the financial year.  This could be a diary or timesheet; and
• Keep receipts for all eligible expenses so each method can be considered to work out the highest claim.

How can SW help

• Provide further information and discuss which method suits your circumstances best
• Advice around how to ensure the maximum tax benefit is obtained with minimal administration workload
• Review expenses incurred and advise which expenses are eligible and can be claimed
• Provide assistance with determining the useful life of assets and assist with calculating decline in value of work related items
• Assist in calculating work related claims using the three methods and provision of workpapers to support the claim in the event of an audit.

Contributors

Janelle McPhee

The post What can you claim working from home? appeared first on SW Accountants & Advisors.

This has highlighted a shift away from the checklist type multi-factorial test, where a valid agreement exists. The High Court found that where parties have entered into a valid and comprehensive written agreement, the terms within the agreement establish the legal character of their relationship.

Below are summaries of the two High Court decisions.

ZG Operations Australia Pty Ltd & Anor v Jamsek & Ors

This High Court case was an appeal from a judgment of the Full Federal Court of Australia.

Mr Jamsek and Mr Whitby were initially employed as drivers by ZG Operations Australia Pty Ltd. In 1985 or 1986 both the individuals set up partnerships, purchased their trucks and signed written agreements with ZG Operations to deliver goods.

The agreements stipulated that Mr Jamsek and Mr Whitby were to be at the exclusive disposal of ZG Operations for 9 hours a day, 5 days a week. The men drove trucks with the company logo and wore ZG branded clothing. They provided invoices to ZG Operations which were then paid to their respective partnerships.

The Full Federal Court of Australia found Mr Jamsek and Mr Whitby were employees of ZG Operations, given the level of control exerted by ZG Operations over the men and the requirement they be at the company’s disposal 9 hours a day, 5 days a week.

The High Court overturned the Full Federal Court decision and found that given neither party questioned the validity of the principal/contractor agreement or regarded it as a sham, the agreement was valid and determined the legal character of the relationship, being that of a principal and independent contractor.

Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd

This case concerned Mr McCourt, a British backpacker who had travelled, resided, and worked in Australia temporarily on a working visa.

Mr McCourt signed a contract with a labour-hire company, Personnel Contracting Pty Ltd, trading as Construct, which described his position as a contractor. Mr McCourt was assigned to two construction sites owned by Hanssen, a client of Construct. During the assignment, he was under the direction of Hanssen employees, although there was no contractual relationship between Hanssen and Mr McCourt. Mr McCourt supplied basic equipment, had recurring patterns of work and set start/finish times.

After his engagement with Construct concluded, Mr McCourt, with the Construction, Forestry, Maritime, Mining and Energy Union, brought an action against Construct seeking compensation and penalties for alleged breaches of the Fair Work Act 2009, on the basis that Mr McCourt was an employee of Construct.

The matter was heard by the Federal Court and later the Full Federal Court where it was decided that Mr McCourt was a contractor based on the multi-factorial test.

On appeal, the High Court unanimously overturned the Full Federal Court’s decision and held that Mr McCourt was an employee of Construct. The High Court found that the multifactorial test approach taken by both the Federal Courts was problematic as it is impressionistic and can lead to inconsistency and considerable uncertainty.

The High Court suggested the characterisation of whether a person is an employee or an independent contractor is determined by reference to a consideration of the legal rights and obligations of the parties under the contract.

The High Court found:

• Construct retained a right of control over Mr McCourt, which was fundamental to Construct’s business as a labour-hire agency
• Construct was entitled to determine for whom Mr McCourt would work and, once assigned, he was required to supply his labour to the client
• Mr McCourt had no right to exercise any control over what work he was to perform or how it was carried out
• The description of Mr McCourt as a ‘self-employed contractor’ was not determinative and did not change the character of the relationship created.

In both cases, the High Court highlighted the importance of applying the terms of the agreement where a valid agreement exists in assessing whether a worker is a contractor or an employee. Merely describing an individual as a contractor in the agreement is not sufficient to support an independent contractor relationship. The contract will need to be considered in its entirety to determine the relationship.

How SW can assist

These cases demonstrate the need to review contractual arrangements you have on foot and seek appropriate tax advice. We can assist in ensuring you remain compliant and make suitable disclosures regarding employment taxes. Please get in touch with your SW contact if you would like to discuss what these decisions mean for your business.

Contributors

Rahul Sanghani

E rsanghani@sw-au.com

Tom Warrington

E twarrington@sw-au.com

The post Employee or contractor? High Court decisions appeared first on SW Accountants & Advisors.