Date posted: 12/10/2021

Tax also needs to adapt to working from home

The way we work may have permanently changed, but is the Australian tax system flexible enough to cope?

In brief

  • Working from home during the pandemic has been a success for many people
  • The temporary short cut for working from home expenses expired on 30 June 2021. It needs to be extended to 31 December 2021
  • The requirement for a dedicated home office under the fixed rate method of calculating working from home expenses is outdated

COVID-19 has forced many people to work from home and while this was challenging initially for some, many have openly embraced the new way of working and are keen to continue once COVID restrictions are lifted.

The NSW Innovation and Productivity Council reports that productivity has increased with remote working and that post-COVID remote working will remain substantially above pre-pandemic levels, with most workers wanting to do at least 2-3 days a week remotely. 

These findings have been echoed by the Productivity Commission that has stated that, “In less than two years, we have gone from less than 8% of Australians working from home to 40%. While this percentage may not always remain so high, it is inevitable that more Australians will work from home. 

“On balance, working from home can unlock significant gains in terms of flexibility and time for employees and could even increase the nation’s productivity.”  

The Productivity Commission then goes on to suggest that “we should not stand in the way of this evolution”.  

Does the tax system stand in the way of the evolution of working from home?  

Arguably it does on at least two fronts – working from home expenses and travel costs. Here we focus on working from home.

Working from home expenses

Generally, to claim working from home expenses you need to have a dedicated home office. Many people who needed to work from home during COVID did not have this but were able to successfully work from home.  

The Australian Taxation Office (ATO) introduced a temporary shortcut method to calculating working from home expenses for both employees and sole traders in recognition of the impact of COVID.  

This shortcut did not require a dedicated home office and dramatically reduced the amount of documentation required to claim working from home expenses. The trade-off was that no other working from home deductions were allowed – which may have resulted in a lower deduction than if the taxpayer had retained more detailed documentation of their expenses.

The method was introduced initially for the period 1 March 2020 to 30 June 2020. However, as COVID lockdowns have been extended, so, too, has the shortcut. But it expired on 30 June 2021.

“In less than two years, we have gone from less than 8% of Australians working from home to 40%.”
Productivity Commission Research Paper Working from home  

With Melbourne and Sydney both still in lockdown as at 30 September 2021 and the possibility of lockdowns (albeit in hopefully smaller areas for shorter periods) occurring even when Australia opens-up as vaccination targets are achieved, there is a very strong case for the shortcut method to be extended to 31 December 2021.

As yet, there has been no answer from the ATO. With people visiting their accountants to complete their tax returns for the year ended 30 June 2021 , now would be a great time for the ATO to announce an extension to give taxpayers some certainty for their tax returns for the year ended 30 June 2022.  

It is likely that a large number of people will be working from home, at least part of a week in future, as advances in technology mean people are no longer tied to a large desktop in a dedicated space or to be surrounded by reams of paper.  

As work can now be completed virtually anywhere, should the Tax Act retain a requirement for a dedicated work space? It is arguable that this is an outdated concept. It is time to consider making this temporary shortcut a permanent feature of Australia’s tax law. 

“Working from home can unlock significant gains in terms of flexibility and time for employees and could even increase the nation’s productivity.” 
Productivity Commission Research Paper Working from home

Working from home - Commission research paper

CA ANZ calls for the temporary short cut method of calculating working from home expenses to be extended from 30 June 2021 to at least 31 December 2021.  

CA ANZ calls for consideration of removing the need to have a dedicated home office in order to access the fixed rate method of calculating working from home expenses.

Read more

ATO commentary of working from home expenses 

Working from home during COVID-19.

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Michael Croker quoted by Accountants Daily 

ATO coy on work-from-home deduction shortcut.

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