How To Tax Deduct Your Working From Home Energy Costs

Wondering how to tax deduct your working home from energy costs? Sleeping in, wearing pyjama bottoms all day and spending more time with our families are just some of the obvious perks of working from home. But ever since March, you’ve likely seen a spike in your energy bills too.

Tax deducting your working from home expenses is not difficult and it could save you hundreds come July next year. Let us explain how.

Do You Qualify For A Tax Deduction?

Before you go to the hassle of calculating your deduction, you need to first check whether you meet the working criteria. Unfortunately, checking your emails before bed or taking a late work call does not automatically turn your bedroom into a ‘home office’.

To qualify for tax deductions on your home office expenses, you must be working from home as an employee to fulfil your employment duties. You must also have incurred additional running expenses as a result of working from home.

Choosing Your Method

The Australian Taxation Office (ATO) is currently offering three different methods for calculating the expenses that result from your home office.

Fixed Rate Method

If you opt for the fixed rate method, then you can claim a deduction for additional running expenses from your home office at 52 cents per hour for each hour worked from home.

The purpose behind this method is to simplify the tax deduction process by giving all home office workers the option to assume their additional expenses cost 52 cents an hour. This 52 cents does not include every work-related expense, but it does include the costs of your electricity and gas for heating, cooling and lighting your workspace.

To prove you have been working from home you must keep records of either:

The number of hours you spent working at home for the year A diary kept over a four-week period that represents your usual pattern of working from home that can be used to represent all the weeks that you worked from home Actual Cost Method

If you believe the estimated, fixed rate method will result in a smaller tax deduction than if you measured your actual costs, then you can use this method instead. Whilst more time consuming, this provides a more accurate picture of your working from home expenses.

To work out your additional home office energy costs, you’ll need to work out:

Cost per unit of power used Average units per hour used Total hours utilised for work-related purposes over the year

This may seem tedious but it could be worth your time if it will save you more money. By referring to your utility bill, you can see how much your units of power consumption cost you per hour. And your home office appliances will typically display their power consumption per kilowatt hour in its packaging or instruction manual.

Once you know the values for each, you can calculate the actual cost of your home office’s energy and deduct this amount when doing your taxes.

Shortcut Method

This method is likely to be the best one for you. It was introduced by the ATO in response to the heightened number of people working from home due to the pandemic. It works in a similar way to the fixed rate method, however it assumes a higher fixed rate of 80 cents an hour.

This method is temporary and can only be used to work out your deduction from 1 July to 31 December 2020 in the 2020-21 income year. For the second half of the financial year, you would need to select between the other two methods and use the combined amount for your deduction.

The main difference between the shortcut and the fixed rate method is that the former covers all your working from home expenses. Meanwhile, the latter still requires you to separately calculate your work-related use for some expenses, such as those resulting from your phone or Internet use.

With the shortcut method available temporarily, it’s never been easier or perhaps even more lucrative to tax deduct your working from home energy costs. When the amount you could save is significant, it’s worth keeping a tally of your hours working from home so you can treat yourself to something nice during tax time.

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