Phone & Internet Claims – Tax Deduction 2016
The ATO has released information on claiming deductions for mobile, home phone and internet expenses for work purposes. The following are some key points made by the ATO.
Substantiating claims
Taxpayers need to keep records for a four-week representative period in each income year to claim deductions of more than $50. These records may include diary entries, including electronic records, and bills. Evidence that the employer expects the taxpayer to work at home or make some work-related calls will also help the taxpayer demonstrate that they are entitled to a deduction.
Apportioning work use for phones
As there are many different types of plans available, taxpayers will need to determine their work use using a reasonable basis. The ATO provides the following guidance.
Incidental use
If work use is incidental and the deduction claim does not exceed $50 in total, the ATO says the taxpayer may make a claim based on the following, without having to analyse their bills: $0.25 for work calls made from the taxpayer’s landline; $0.75 for work calls made from the taxpayer’s mobile; and $0.10 for text messages sent from the taxpayer’s mobile.
Usage is itemised on taxpayer’s bills
If the taxpayer has a phone plan and receives an itemised bill, the taxpayer needs to determine their percentage of work use over a four-week representative period that can then be applied to the full year. The percentage needs to be worked out on a reasonable basis. This could include: the number of work calls made as a percentage of total calls; the amount of time spent on work calls as a percentage of total calls; or the amount of data downloaded for work purposes as a percentage of total downloads. The ATO provides the following example.
Example – phone calls are itemised on your bill
Julie has an $80 per month mobile phone plan, which includes $500 worth of calls and 1.5GB of data. She receives a bill which itemises all of her phone calls and provides her with her monthly data use. Over a four-week representative period Julie identifies that 20% of her calls are work-related. She worked for 11 months during the income year, having had 1 month of leave. Julie can claim a deduction of $176 in her tax return (20% x $80 x 11 months).
Usage is not itemised on taxpayer’s bills
If the taxpayer has a phone plan but does not receive an itemised bill, the taxpayer can determine their work use by keeping a record of all their calls over a four-week representative period and then calculate their claim using a reasonable basis. The ATO provides the following example.
Example – non-itemised account
Ahmed has a prepaid mobile phone plan which costs him $50 per month. Ahmed does not receive a monthly bill, so he keeps a record of his calls for a 4-week representative period. During this 4-week period, Ahmed makes 25 work calls and 75 private calls. Ahmed worked for 11 months during the income year, having had 1 month of leave. Ahmed calculates his work use as 25% (25 work calls/100 total calls). He claims a deduction of $138 in his tax return (25% x $50 x 11 months).
Bundled phone and internet plans
Phone and internet services are often bundled. When taxpayers are claiming deductions for work-related use of one or more services, they need to apportion their costs based on their work use for each service. If other household members also use the services, the taxpayer needs to take into account their use in their calculation.
If the taxpayer has a bundled plan, they need to identify their work use for each service over a four-week representative period during the income year. This will allow the taxpayer to determine their pattern of work use, which can then be applied to the full year. A reasonable basis to work out the taxpayer’s work-related use could include:
- for internet usage:
- the amount of data downloaded for work as a percentage of the total data downloaded by all members of the taxpayer’s household; and
- any additional costs incurred as a result of the work-related use, eg if work-related use results in the taxpayer exceeding their monthly cap;
- for phone usage:
- the number of work calls made as a percentage of total calls;
- the amount of time spent on work calls as a percentage of total calls; and
- any additional costs incurred as a result of work-related calls, eg if work-related use results in the taxpayer exceeding their monthly cap.
The ATO provides the following example.
Example 1 – apportioning bundled services
Sujita has a $100 per month home phone and internet bundle. The bill identifies that the monthly cost of Sujita’s phone service in her bundle is $40, and her internet service is $60. Sujita brings in her mobile phone plan of $90 per month and receives a $10 per month discount. Her total costs for all services are $180 per month. Sujita worked for 11 months during the income year, having had 1 month of leave. Based on her itemised accounts, Sujita determines that the work-related use of her mobile phone is 20%. Sujita also uses her home internet for work purposes, and based on her use she determines that 10% of her use is for work. Sujita does not use her home phone for work calls. As the components are part of a bundle Sujita can calculate her work-related use as follows:
Step 1 – work out the value of each bundled component
Mobile phone
$90 per month minus the $10 per month discount = $80 per month
Internet
$60 per month as identified on her bill
Home phone
Sujita does not need to determine the home phone costs as she does not use this service for work purposes.
Step 2 – apportion your work related use
Home internet use
10% work-related use x $60 per month = $6 work-related use per month x 11 months
Sujita can claim $66
Mobile phone use
20% work-related use x $80 = $16 per month x 11 months
Sujita can claim $176
In her tax return Sujita claims a deduction of $242 for the financial year ($66 home internet use + $176 mobile phone use)
Sujita cannot claim work-related use of her home phone as she did not use it for work.
ATO warns on over-claiming
Taxpayers should be aware that unusually high work-related expense claims may attract the attention of the ATO. It is important to carefully review deductions before lodging your tax return to avoid a delay in getting a return.
In this regard, the ATO has reminded taxpayers that its ability to identify and investigate claims that differ from the norm is improving due to rapid technology enhancements and data-matching.
Want to know more?
Please contact our office on (02) 9954 3534 or email admin@hurleyco.com.au for more information.