Substantiation Requirements for Home Office Deductions
Same as other deductions, records for home office expenses must be kept for five years.
But in reality, it may be difficult to fully comply with the ATO’s substantiation requirements. While it may be easy to keep the receipt for a printer bought for your home office, proving the deductible proportion of a particular utility bill may not be so. To solve this problem, some administrative guidelines have been provided by the ATO.
Substantiating business use proportion
There are three methods for computing the business use proportion for a specific expense. Here they are in order of preference by the ATO:
- Explicit proof of business use, like an itemised phone bill.
- Records of representative periods of use, like a diary record covering a period of 4 weeks (details below).
- A ‘reasonable estimate’, this term is not defined by the ATO, but the taxpayer is required to show that a particular item was ‘reasonably likely’ under the circumstances.
4-week representative records
Claims over $50
The taxpayer is required to save records for a 4-week representative period in every income year so that they can claim a deduction exceeding $50. Whether the $50 cap applies for every expense type or in total is not clear.
The taxpayer can elect to maintain records for more than 4 weeks or to use their deduction on itemised bills (see above) for the full year as the basis for a more accurate deduction. The 4-week record is just the least amount of record-keeping that the tax office will take. Providing a time-limited representative record such as the 12-week logbook for car expense deductions is not a legal requirement.
Don’t forget to correct the deduction for the number of holidays taken.
Proof that the employer expects the taxpayer to work from home or make business-related calls will be looked at favourably by the ATO. But note that the employer expectation is not required by law. According to regulation and common law pertaining to work-related costs, that costs are incurred while earning assessable income and are not personal, domestic or capital in nature is sufficient.
Claims of $50 or below
Though it is not explicitly stated, it can be inferred that the ATO will not be undertaking substantiation checks on claims of $50 or less. But this only applies to the substantiation of the amount, and the taxpayer is still required by law to deduct the amount. Thus, it would be wise for the taxpayer to keep evidence that some work was undertaken from home during the year.
Shared expenses
The ATO accepts an invoice in the name of one person as proof of shared expenses. This may apply if spouses or housemates in shared accommodations each carry out work from home, using shared utilities.
If you have questions or need assistance about home office deductions, contact PJS Accountants. We offer expertise in managing your tax affairs with a full range of compliance, corporate and individual tax services, whether you are a large company, SME, family business or individual. Meet with one of our expert advisers now and ensure you are always compliant with ATO rules.
