Client Alert – Instant asset write offs and more

Working out your WFH expenses this tax time

To be eligible to claim working from home (WFH) expenses, you need to be genuinely working from home to fulfil your employment duties, not just checking emails or taking occasional calls. You must also incur additional running expenses because of your WFH arrangement. These additional costs can typically include energy expenses for heating, cooling and lighting, home and mobile internet or data, phone expenses, and stationery or office supplies.

When it comes to calculating your deductions, you can choose the “fixed rate method” or the “actual cost method”. For both methods, you’ll need records that accurately track your WFH hours. You can keep a diary or timesheets covering a representative four-week period showing your usual work pattern, or you can maintain a record of your entire year’s WFH hours. You’ll also need documentation showing you’ve incurred additional expenses, such as receipts and bills, and be able to demonstrate the proportion that relates to work.

The fixed rate method simplifies your calculations by applying a set rate for each hour you work from home. For the 2024–2025 income year, this rate is 70 cents per hour. To calculate your deduction, simply multiply your total WFH hours by 70 cents. Remember, if you choose this method, you can’t claim additional separate deductions for expenses already covered under the fixed rate method, such as stationery supplies.

The actual cost method requires you to keep detailed records of all additional costs incurred while working from home. You’ll need to track your WFH hours and maintain comprehensive records for all your WFH expenses.

It’s important to understand what you can’t claim when working from home. This includes items your employer might provide at the office, such as tea or coffee or other general household items. You also can’t make a claim for employer-provided laptops or mobile phones, or expenses which your employer has reimbursed.

You can make separate claims for expenses not covered by either of the above methods, such as work-related technology and office furniture like chairs, desks, computers and bookshelves, as well as repairs or maintenance on these items.

If you use depreciating assets for both work and personal purposes that cost more than $300, you’ll need to calculate the work-related proportion and only claim that percentage as a deduction for the decline in value over the effective life of the item. For items costing $300 or less, such as keyboards or computer mice, you can claim an immediate deduction in the year of purchase rather than depreciating them over time.

For a work-related expense to be deductible, it must directly relate to earning your income.

The ATO has shared some recent eyebrow-raising work-related expense claims that were rejected: a mechanic tried to claim an air fryer, a microwave, two vacuum cleaners, a TV, and gaming equipment; and, even more ambitiously, a fashion industry manager claimed over $10,000 in luxury clothing and accessories in order to be “well presented” at work and events, dinners and functions.

Instant asset write-off extended to 30 June 2025

Announced as part of the 2024–2025 Budget, and now legislated, the $20,000 instant asset write-off limit has been extended for a further 12 months until 30 June 2025 to continue to provide support for small businesses.

The instant asset write-off enables eligible businesses to claim an immediate deduction for the business portion of the cost of an asset in the year it is first used or installed ready for use. The write-off can be used for new and second-hand assets, and for multiple assets if the cost of each individual asset is less than the relevant limit.

To claim the instant asset write-off, a small business must use the simplified depreciation rules, and the write-off cannot be used for assets excluded from those rules. Eligibility criteria, the year in which you may use the instant asset write-off to claim an immediate deduction for an asset, and the threshold limits, have changed over time, and depend on:

• your aggregated turnover (the annual turnover of your business and that of any business entities that are your affiliates or connected with you);

• the date you purchased the asset;

• when it was first used or installed ready for use; and

• the cost of the asset being less than the limit.

To be able to take advantage of the $20,000 threshold for the 2024–2025 income year as a small business you will need to: have an aggregated turnover of less than $10 million; apply the simplified depreciation rules; and acquire the asset and first use it, or install it ready for use, between 1 July 2024 and 30 June 2025.

The $20,000 limit applies on a per asset basis, so you can instantly write off multiple assets.

Assets valued at over $20,000 can continue to be placed into the small business simplified depreciation pool and depreciated at 15% in the first income year and 30% each year after that. Additionally, pool balances under $20,000 at the end of the 2024–2025 income year can be written off.

The simplified depreciation rules apply to most depreciating assets, including items like office furniture or equipment; computers; tractors or tools. However, the instant asset write-off doesn’t apply to certain depreciating assets, including assets leased out for more than 50% of the time on a depreciating asset lease; horticultural plants, including grapevines; software allocated to a software development pool; assets used in your research and development (R&D) activities; and capital works, including buildings and structural improvements.

 

Source: Thomson Reuters