There are many questions being asked lately about claiming expenses when forced to work from home over the COVID-19 period - plus a lot of concern about any consequent capital gains issues when later selling a property from which people have been coerced to work from during this time.

Capital gains

First of all, the CGT issue is fairly straight forward. The ATO says that in most cases, if you are working from home as an employee, regardless of whether or not you have a separate work area, there will be no CGT implications on any later sale or disposal of the home. This is the case even if you claim home office expenses, using the new “COVID-19 shortcut method” (below).

However, CGT may apply if you are running a business from home and, as a result r you can claim occupancy expenses (like mortgage interest repayments or rates). In this case, you will generally only be entitled to a partial CGT exemption because of using part of your home as a place of a business.

Claiming COVID work-at-home deductions

The ATO says that to claim a deduction for working from home, all of the following must apply:

you must have spent the money
the expense must be directly related to earning income
there must be a record of this that can be provided if asked.

But remember, you cannot claim a deduction for items provided by your employer, or if you have been reimbursed by the employer for expenses. If there has not been a reimbursement but you have instead received an allowance to cover expenses when working from home, you:

need to include this allowance as income in your tax return, and
claim a relevant deduction in respect of it (as outlined below).

Expenses that can be claimed

If you work from home, you will be able to claim a deduction for additional running expenses incurred, which may include:

electricity expenses associated with heating, cooling and lighting the area from which you are working, and running assets used for work (such as a computer and printer)
associated cleaning costs for a dedicated work area
phone and internet expenses
computer consumables (for example, printer paper and ink) and stationery
home office equipment, including computers, printers, phones, furniture and furnishings. Of these, you can claim either the:
full cost of items up to $300
a decline in value for items over $300.

The ATO has stated that it accepts that tracking all of these expenses can be challenging for ordinary taxpayers, so has undertaken to accept a temporary simplified method (or “shortcut” method) of calculating additional running expenses for the period starting 1 March 2020 until at least 30 June 2020. More details are below. It says it may extend this method depending on when general work patterns may return to what has until now been accepted as “normal”.

Expenses not within the COVID-19 ambit

If you are only working from home because of the COVID-19 situation, you generally:

cannot claim the cost of coffee, tea, milk and other general household items an employer may otherwise have provided while you were at the usual work place
cannot claim occupancy expenses such as mortgage interest, rent and rates.

Calculating running expenses

There are at present three ways you can choose to calculate additional running expenses:

fixed rate method ─ claiming all of these:
a rate of 52 cents per work hour for heating, cooling, lighting, cleaning and the decline in value of office furniture,
the work-related portion of actual costs of phone and internet expenses, computer consumables, stationery, and
the work-related portion of the decline in value of a computer, laptop or similar device.
actual cost method ─ claiming the actual work-related portion of all running expenses, which you need to calculate on a reasonable basis.
the new shortcut method (details below).

Shortcut method

Under the short cut method, you can claim a deduction of 80 cents for each hour as long as you are:

working from home to fulfil employment duties and not just carrying out minimal tasks such as occasionally checking emails or taking calls,
incurring additional deductible running expenses as a result of working from home.

Note that in this case, you do not have to have a separate or dedicated area of your home set aside for working, such as a private study.

The shortcut method rate is intended to cover deductible running expenses, including:

electricity for lighting, cooling or heating and running electronic items used for work (for example a computer), and gas heating expenses
the decline in value and repair of capital items, such as home office furnishings
cleaning expenses
phone costs (which includes decline in value of the handset)
internet costs
computer consumables, such as printer ink
stationery
the decline in value of a computer, laptop or similar device.

It should be pointed out that you do not have to incur all of these expenses, but you are likely to have incurred additional expenses in some of those categories as a result of working from home due to COVID-19.

Importantly, if you opt to use the shortcut method to claim a deduction for additional running expenses, you cannot claim a further deduction for any of the expenses listed above. Also, if you use the 80 cents an hour shortcut method to claim a deduction, when we lodge your 2019-20 tax return we will need to include a note in your return stating “COVID-hourly rate”.

For this shortcut method, the ATO will require some form of record of the number of hours you have worked from home as a result of COVID-19. Examples are timesheets, diary notes or rosters. If using the other methods, a record of the number of hours worked from home is also required along with records of expenses.

Your business and the JobKeeper scheme

The ATO has been charged with running the JobKeeper Payment scheme, which is intended to support businesses that are financially affected by COVID-19 to help keep their staff employed.

Employers will be required to pay their eligible employees a minimum of $1,500 a fortnight, before tax, to claim the JobKeeper payment. This is then paid in arrears back to the employer each month by the ATO.

Note that if a staff member had been earning more than this amount before tax, the business will need to make up the rest as the employer will still only get the $1,500. If they earned less, the employer will still be required to pay them $1,500. There is no “keep the difference” option in these cases, and not paying the full $1,500 cancels a business’s eligibility.

Payments are made each fortnight, with the first fortnight period (30 March to 12 April) already having passed. The run of fortnights is intended (at present) to end at 27 September. There is no need to adjust any payroll periods already adopted, but the JobKeeper reimbursements will follow this fortnightly schedule.

Entitlement to JobKeeper reimbursements will usually pivot on a business’s payroll, but the ATO says the first two fortnights can be deemed as already compliant as long as staff had been paid the required amounts by the end of April.

All JobKeeper payments are assessable income of a business, and the normal rules on deductibility apply on their payment to eligible employees.

The payments are not subject to GST. Super guarantee obligations apply to previous income levels, but there is no SG on additional payments resulting from the scheme.

Eligibility

The central measure on gaining access to the JobKeeper payments is a fall in turnover. A business with an aggregated turnover of $1 billion or less will qualify if facing a 30% fall in turnover (the trigger is 50% for greater aggregated turnover businesses and 15% for registered charities).

If an employer wants to be involved with JobKeeper payments for the months of April and May 2020 (just by way of example), the fall in turnover is found by comparing either:

GST turnover for April 2020 with GST turnover for April 2019
projected GST turnover for May 2020 with GST turnover for May 2019
projected GST turnover for the quarter starting May 2020 with GST turnover for the quarter starting May 2019.

Reporting BAS monthly or quarterly does not necessarily influence the outcome, and once the decline in turnover is established there is no need to keep testing each month. Also the Commissioner has discretion to use an “alternative” measure if the above is inappropriate (if for example the business has been operating for less than a year). The ATO has released a set of alternative tests for turnover, and we can explain these if appropriate to your circumstances.

Eligibility also generally depends on you having been carrying on a business on 1 March and employing at least one eligible employee. Sole traders, partners in partnerships, beneficiaries in trusts, shareholders of companies and directors of companies who are not employed in the business can participate in the JobKeeper scheme – but only one per entity and only if they are actively engaged in the business. This rule applies whether or not the business has other employees, but a further qualifying factor is that the entity must have held an ABN at 12 March.

Government bodies or companies in liquidation are unable to enrol for JobKeeper. Individuals that are bankrupt also cannot enrol.

As far as employees go, they can be permanent full or part time, or casual if employed on a regular or systematic basis for at least 12 months at 1 March. They must also be Australian residents (as defined) aged 16 or over, not receiving parental leave or dad and partner pay, nor workers compensation. Note that they cannot receive payments from more than one employer.

Steps to enrol

A central part of receiving the benefits of the JobKeeper package is of course for you to put your hand up and let the government know it is required. Your employees will also have to a form to fill out and return.

Before you enrol for JobKeeper, you need to complete the JobKeeper employee nomination notice to:

notify eligible employees that you intend to participate in the scheme
ask them if they agree to be nominated and receive payments from you as part of the scheme.

We can supply you with the necessary forms, and can help guide you in filling them out.

Finally, note that the JobKeeper rules are something of a moving feast at the moment and therefore it is vital to get professional assistance in relation to eligibility for the support.

Alternative turnover test for JobKeeper released

An alternative decline in turnover test for the JobKeeper payment scheme has now been registered by the ATO. The ATO says the alternative tests will only kick in if an entity cannot satisfy the basic decline in turnover test.

The instrument applies to provide alternative bases for a class of entities (more below) to satisfy the decline in turnover test for the purposes of seeking to be a qualifying employer for JobKeeper payments, when the Commissioner is satisfied that there is not an appropriate relevant comparison.

The explanatory statement says these alternative tests will only apply to certain circumstances, of which there are seven dealt with in the instrument. The legislative instrument applies to classes of entities to which the following circumstances apply:

An entity commenced business after the relevant comparison period in 2019 with the event or circumstance outside the usual business setting being that the business did not exist in the relevant comparison period and as a result there was no relevant comparison period in 2019. This applies to entities that were not operating any business, it does not apply to an entity that was operating one or more businesses and commenced a new additional business.
An entity acquired or disposed of part of their business after the relevant comparison period in 2019 including more than one acquisition or disposal and the acquisition or disposal, or acquisitions or disposals, changed their turnover. The event or circumstance outside the usual business setting being that the business was not the same business and as a result is not comparable after the acquisition(s) or disposal(s) to as it was in relevant comparison period in 2019.
An entity has restructured part or all of their business after the relevant comparison period in 2019, including more than one restructure, and that restructure, or restructures, has changed the entity’s turnover. The event or circumstance outside the usual business setting being that the business was not the same business and as a result is not comparable after the restructure(s) to as it was in relevant comparison period in 2019.
An entity has had an increase in turnover by 50% or more in the 12 months immediately before the applicable turnover test period, or 25% or more in the 6 months immediately before the applicable turnover test period, or 12.5% or more in the 3 months immediately before the applicable turnover test period. The event or circumstance outside the usual business setting being that as a result of undergoing such rapid growth the business of the entity is not comparable after the growth to the business as it was in the relevant comparison period in 2019.
An entity has been affected by a drought or other natural disaster in the relevant comparison period in 2019. The event or circumstance outside the usual business setting being the drought or other natural disaster which adversely affected the business and as a result the relevant comparison period in 2019 is not appropriate.
An entity has an irregular turnover that is not cyclical, such as can occur in the building and construction sector. The event or circumstance outside the usual business setting is the non-cyclical irregular turnover and as a result the relevant comparison period in 2019 is not appropriate. An entity with a cyclical turnover such as an entity that operates a seasonal business which generates most of its turnover at a particular time of year has an appropriate relevant comparison period – a cyclical turnover is within the usual business setting.
An entity is a sole trader or a small partnership and the sole trader or one of the partners did not work for all or part of the relevant comparison period because they were sick, injured or on leave during the relevant comparison period and those circumstances affects the turnover of the sole trader or partnership. The usual business setting is the sole trader or partner working in the business generating turnover and so their absence from work is an event or circumstance outside the usual business setting resulting in the relevant comparison period in 2019 not being appropriate.

Outside of these, the ATO says it may not be able to determine an alternative decline in turnover test in all circumstances. “For example, an entity being subject to a severe drought from 2018 until September 2019 that reduced the amount of the crop that it could grow.”

COVID-19 instant asset write off and accelerated depreciation

While many of the COVID-19 stimulus changes such as the JobKeeper payment are grabbing headlines, it is easy to overlook the significance of the $150,000 instant asset write off provisions.

The key changes for the instant asset write off include the following.

Certain business entities can access an immediate deduction for the full cost of depreciating assets costing up to $150,000 (GST exclusive).
The asset must be first used, or installed ready for use, for a “taxable purpose” during the period 12 March 2020 to 30 June 2020.
The write-off will be available to businesses with an “aggregated turnover” of less than $500 million.

Note that for a car that costs above the luxury car cost limit, only the cost limit of the car can be claimed as an immediate tax deduction in the period to 30 June 2020. This is because the relevant provisions refer to the “adjustable value” of the asset and the first element of the cost of a car is reduced to the car limit if the cost exceeds that limit.

The instant asset write-off threshold will also be increased to $150,000 for amounts included in the second element of an asset’s cost (typically, subsequent capital expenditure) provided:

the cost of the related asset was subject to the instant asset write-off in an earlier year; and
the amount is included in the second element of the asset’s cost during the period from 12 March 2020 to 30 June 2020.

The threshold will also be increased to $150,000 for the balance of an entity’s general small business pool that can be claimed as a deduction at the end of an income year for income years that end on or after 12 March 2020, but before 1 July 2020.

Note: From 1 July 2020, the instant asset write-off threshold will revert to its original level of $1,000 (unless legislative changes are made in the meantime) and will only be applicable for businesses with an aggregated turnover of less than $10 million.

Accelerated depreciation

Businesses with an aggregated turnover of less than $500 million in an income year can deduct capital allowances for a qualifying depreciating asset at a rate of 50% of its cost. This is in addition to the normal depreciation that is claimed on the cost of the asset after deducting the 50% amount.

A qualifying depreciating asset must satisfy several conditions, including:

it must be new and not have been previously held by another entity (other than as trading stock or for testing purposes),
it is an asset for which an entity has not claimed depreciation deductions, including under the instant asset write-off rules, and
it is first held, and first used or installed ready for use, for a taxable purpose between 12 March 2020 and 30 June 2021.

It should also be noted that a small business entity (that is, an entity with turnover below $10 million using the simplified depreciation rules) can deduct depreciation at the rate of 57.5% for the “taxable purpose” proportion of the cost (or the adjustable value) of a “qualifying depreciating asset” where it is added to the general small business pool and it is held and used, or installed ready for use, between 12 March 2020 and 30 June 2021 (inclusive).

NEWS

Answers to COVID-19 work-from home expense questions and CGT concerns