It can be quite complex. I’ve used the deduction, but only after obtaining guidance from a tax Professional. Note that tax professionals /accountants can vary in the quality of advice provided.
Choose carefully, and seek reliable references. Best from those you know are reliable.
General note:
The article gives general tax advice which will be incomplete if there is a CGT issue, so maybe some supplementary advice would be appropriate.
Wise words indeed.
Our son-in- law has been using our own accountant who is in Cairns whilst working in various states and countries, and when he has tried using alternative accountants based in where they were currently living, he has very quickly reverted back.
As indicated, there are many permutations associated with running a business or working from home. Each permutation may have different tax implications including CGT. This is why anyone claiming deductions for home offices/home businesses needs to seek out professional advice based on their own circumstances. The ATO is also a useful website for general information such as…
The ATO advice confirms my suspicion that a member following Choice’s advice would be exposed to partial loss of the principal place of residence exemption from CGT.
The article indicates an ability to claim a deduction of 80c/hour. That would amount to, say, $1600 pa (for 2000 hours) and a tax saving (dependant on marginal tax rate) of perhaps $600. The CGT impact obviously varies depending on individual circumstances, but is likely to be more than the $600 saving.
The advice to claim the “Tax Break” is poor advice and should be corrected.
Due to the pandemic, many workers have been working from home. And issues of tax deductions for home offices have been of interest.
I have seen plenty of dodgy advice in articles in the popular press.
Just go straight to the ATO. They have a wealth of information you can rely on.
Yep! Seems very straight forward to me.
From the prior ATO links provided by @phb.
In most cases, if you are working from home as an employee, regardless of whether or not you have separate work area, there will be no capital gains tax (CGT) implications for your home. This is the case even if you claim home office expenses.
CGT may apply if you are running a business from home or you claim occupancy expenses (like mortgage interest repayments or rates).
If you do claim occupancy expenses, you don‘t get the full main residence CGT exemption, although you may be entitled to a partial exemption.
One more good reason to not jump to conclusions, but seek further advice if you claim occupancy expenses.
Note the ATO clarifies the circumstances where employees work from home. For all others, it would be usual for anyone running a business from home to have a professional accountant, who could resolve any uncertainty.
I don’t know if CHOICE got Tax advice before creating the article but I assume they did, if they did and it all seems in line with ATO statements on the matter then correcting would seem to be incorrect.
Perhaps we should await some feedback from CHOICE and/or a qualified Accountant/Tax Expert before we call on CHOICE to make any changes to their advice.
Please note this $0.80 figure is only a shortcut measure for the period March 2020 to June 2021 and is not the usual method of calculation. This shortcut method was introduced due to the COVID-19 pandemic. It does not take into account Mortgage Interest payments and or rates, which then requires a Tax professional to determine the actual deductions and CGT impacts.
I think if the Business was being run from home the deduction would be for the ongoing dedicated Office space as a permanent expense ie 24 hours a day, 365 days a year so a total claim of $7,008.00 per annum if using the $0.80 per hour figure. It would be different for a worker working from home so perhaps the estimated $600 per year and there would be no CGT consequences. If using a 48 week year (4 weeks annual leave) at 7 hours a day and a 5 day week the total hours for an employee would be 1,680 and multiplied by the deduction of $0.80 the taxable income deduction would be about $1,340 by my calculations.
The following is for a Business run from Home and not a COVID imposed work from home for an employee (who would likely not suffer CGT imposts unless claiming Rates and or Mortgage Interest payments).
If say the house in the 12 month period increased in value by $30,000 dollars and the office space accounted for say a very generous 10% of the total property (this has to include the land and the building area) then the CGT would roughly account for an extra $900 expense against a tax deduction of $7,008.00 and at the business rate of tax (27.4% at the moment) would mean a reduction in Tax of $1,920. Less the $900 (possible CGT impact) means a Business run from home would be somewhere around $1,000 better off on these estimations of values (also need to consider that if a loss rather than a saving then business losses can be carried forward into future years).
So the general advice of the $0.80 per hour works well for an employee currently working from home, it works well for a Business that runs from home up to a reasonable home value increase. And probably most importantly this $0.80 per hour only applies as the simplified method until June 2021 after which it reverts back to the normal methods of calculation. This of course needs Professional advice when seeking to claim if an employee, the value of Mortgage Interest payments and or rates but is not really needed if simply claiming the $0.80 per hour as allowed during this special period.
The ATO advice extracted above is to the effect that claiming home office expenses does impact adversely on CGT exemption. That’s why the Choice advice is incomplete.
No it doesn’t except in very specific circumstances such as claiming mortgage interest payments and or rates. Things like phone, consumables, infotech do not affect CGT and they never have to my knowledge.They the ATO also make it clear that if it is the fast track $0.80 per hour for a home work situation this will not affect CGT obligations for a worker.
Thanks for your comments about our article @freddo, you’ve raised some excellent points. Unless I’m mistaken, here is the digital version of the article that appeared in the April 21 print mag (pg 21) that pertains to ways to save money while working from home. There’s some comments in there for solar power system users, and the comment around deductions is about the ‘shortcut method’, where the ATO allows people to easily claim “a deduction of 80 cents for each hour you worked from home from the period between 1 July 2020 to 30 June 2021 in your 2020–21 tax return.”
There’s obviously some crossover here to the costs of PV systems and ways to recoup those expenses. We also have some solar payback info with more details on these issues, but they are getting a bit dated now, which is why we have a partnership with Solar Quotes to provide a more dynamic solar cost calculator.
Considering the context provided above of ‘working from home’, we didn’t set out to provide a comprehensive framework around costs like solar panels and how it might affect a person’s overall tax outlook. To my understanding, it will depend on the income levels and investments at an individual level, and also the overall financial structures and strategies in place. For more complex tax situations, an appropriate level of attention from a financial professional is required whereas the CHOICE advice is always general in nature.
We appreciate your comments and your support, and have passed them on directly to the authors and the team who work on energy issues for something we could potentially consider providing some more detailed info on in the future.
