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15-Oct-2020 By - team

Interested in deducting internet and phone as bussiness expense?

Do you use your laptop, desktop, tablet or phone for work? Then you can claim a deduction for work-related use of the device and the work-related portion of the decline in value (depreciation) of the device.

If you use your phone or internet for work purposes, you may be able to claim a deduction if all of the following conditions apply:

  • you spent the money yourself
  • the expense is directly related to earning your income
  • you must have a record to prove it.

You can’t claim a deduction where you haven’t incurred any expenses, or you’re reimbursed for any costs by your employer.

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With a surge of Australians now working from home due to the coronavirus outbreak, it’s likely that your home Internet and mobile usage is growing. Make sure you know how to figure out the amount you’ve used for work purposes so you can claim tax back on your Internet and phone bills when it comes to the end of the financial year.

If you have a home office, you’re a sole proprietor, or you do some of your work at home, you might be entitled to a break on your taxes. Since an Internet connection is often a necessary expense to make money, you’re allowed to deduct some of the cost on your 1040 tax return documents. Of course, only the Internet usage used for business is deductible, so it’s important that you keep careful records and only deduct according to the amount of time you spent using the internet for work.

Mobiles For Work

Recent research shows there are more mobile phones than people in Australia. With smartphones reaching omnipresence, it’s becoming more difficult for employees to draw the line between work and play. Our ‘always on’ culture sets the expectation that employees are contactable at almost any hour of the day, any day of the week.

If you’re one of the millions of Australians who use their mobile phone to make or receive work calls, you may be entitled to claim a tax deduction on the costs incurred. With the average annual smartphone bill hovering around $700, you could be missing out on hundreds of extra dollars in refunded tax when you complete your return.

To avoid short changing yourself or accidentally over-claiming, here’s what you need to know about claiming your phone usage.

Common work-related phone expenses include:

  • Phone calls
  • Video calls
  • Text messages
  • Emails
  • Logging in to systems
  • Software testing
  • Online research
  • Tracking

 

So it’s not just work-related phone calls that cost you money when you use your mobile phone for work it’s data too so it’s work getting all of your phone expenses back in our pocket each you.

If you use your phone for work purposes, you can claim a deduction if you paid for these costs and have records to support your claims. If you use your phone for both work and private use, you will need to work out the percentage that reasonably relates to your work use. You can’t double-dip and claim for phone expenses that have been reimbursed by your employer.

To work out your deduction, you need to choose a typical four-week period from some point in the tax year.

If you have a phone plan where you receive an itemised bill, you need to determine your percentage of work use over those 4 weeks. You can then apply that to the full year.

If you purchased a phone outright that you use partly for work, you could claim a percentage of the purchase price. You’ll need a record of the purchase, of course. If the phone was below $300, you could claim a tax deduction for the business percentage of that amount as a one of tax deduction.

You claim the depreciation of the mobile phone over its lifespan, which the ATO states are two years from the date of purchase.

These days, it’s common for phone companies to bundle phone and internet plans. If you have a mobile, home and internet bundle, you’ll need to apportion your costs based on your work use for each service. If other members of your household use the internet, you’ll need to factor their usage into your calculation.

To work out a reasonable pattern of use, you’ll need to identify what percentage of your use was work-related over a four-week representative period during the tax year. You can then apply this to get used over the year.

Phone and internet services are often bundled. If you are claiming deductions for work-related use of one or more services, you need to apportion your costs based on your work use for each service.

If other members in your household also use the services, you need to take into account their use in your calculation.

If you have a bundled plan, you need to identify your work use for each service over a four-week representative period during the income year. This will allow you to determine your pattern of work use, which you can then apply to the full year.

A reasonable basis to work out your work-related use could include:

  • Internet
    • the amount of data downloaded for work as a percentage of the total data downloaded by all members of your household
    • any additional costs incurred as a result of your work-related use, for example, if your work-related use results in you exceeding your monthly cap.
  • Phone
    • the number of work calls made as a percentage of total calls
    • the amount of time spent on work calls as a percentage of your total calls
    • any additional costs incurred as a result of your work-related calls, for example, if your work-related use results in you exceeding your monthly cap.

 

If you lease the phone, you can pay the work percentage of that lease amount and the same goes if you pay for a monthly plan. Keep a record of all your work data usage against your usage then claim the work percentage on your return.

Itemised bills:

Work out the amount to claim by:

  1. Recording the number of work calls and the time spent on work calls.
  2. Recording the amount of data downloaded for work purposes.

Example: Ann is on an $80 per month phone plan that includes $500 worth of calls and 1.5GB of data. Her bill itemises her phone calls and provides her with her monthly data use.

Ann works out that work-related phone calls make up 20%. So, after taking off the month of leave she took during the year, she establishes that 20% × $80 × 11 months = $176. She can claim $176 in phone expenses on her tax return.

Non itemised bills

If your bill is not itemised, keep a record of your phone expenses that are work-related,

If you use your personal mobile phone for work purposes, you’re entitled to claim a deduction for the costs incurred provided your employer didn’t reimburse you, and you have records to support your claims. If you use your phone for both personal and work purposes, you can still claim a deduction but only for the percentage that relates to work use.

 

How Do I Claim My Mobile Phone Bills As A Tax Deduction?

Claiming your phone bill on tax

If you use your phone for work, then you may also be able to claim the cost of work-related usage on your tax return. Like Internet usage, you can only claim the cost of mobile phone usage that relates exclusively to your work. For example, checking work emails on your phone and making work-related phone calls would be considered work use. Working it out is very similar to your Internet use:

  1. You estimate what percentage of your phone use is for work purposes. For example, if you think you 40% of your phone use is for work purposes, then take 40%.
  2. Work out 40% of your monthly mobile plan bill.
  3. Multiply your monthly work-related phone bill by 12 to give you a figure for the year.

Claiming your phone expenses is not as simple as just uploading your monthly mobile phone bill to your tax return and entering the total amount in your tax return. The ATO know you also use your personal phone for personal use. So how do you claim work-related phone expenses the right way?

To start with, be very clear that you can only claim the work use percentage of your phone use. You’ll need to work out what that percentage is, and you’ll need to keep records of those costs.

While you need to keep records to substantiate your claim, you don’t need to save every single phone record. So before you start highlighting your work calls, here’s how you can substantiate your claim.

If you’re claiming a deduction of more than $50, you’ll need to keep a record over a four-week period from some point in the tax year. If you receive an itemised phone bill, you need to determine your percentage of work use over those 4 weeks and then apply this to the entire year.

If, as an employer, you pay allowances or reimbursements to your employees so they can use their own mobile device to set up and use myGovID, those expenses will also be deductible.

If you don’t receive an itemised bill, you can determine the percentage of your work use by keeping a record of all your calls over a 4-week representative period. Then you can calculate your claim using 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 your total calls
  • The amount of data downloaded for work purposes as a percentage of your total downloads

Other records may include diary entries, including electronic records and bills. Producing evidence that your employer expects you to work at home or make some work-related calls will also help you demonstrate you’re entitled to a deduction.

You can only claim a tax deduction for the portion of your bills that relate to your work use, not personal use, and you need to be able to show your calculations to the Australian Taxation Office (ATO) if you’re asked to. The ATO monitors tax returns each year to check people are claiming deductions that they’re entitled to claim. If you claim too much, or you can’t show your calculations when asked, you won’t get the tax deduction, and you could also be hit with a fine.

Recruiting And Hiring During The Coronavirus Outbreak Pic 2

When You Can’t Claim A Deduction For Your Phone?

Employer-provided phone

If your employer provides you with a phone for work use and they are billed for the usage (phone calls, text messages, data), then you can’t claim a deduction. Similarly, if you pay for your usage and are then reimbursed by your employer, you can’t claim a deduction.

Costs you incur before work commences.

If you use your phone to seek employment, you can’t claim a deduction as you are not yet generating income from the use of the phone.

Similarly, if you are a casual employee and an employer calls you to ask you to work, or you call them to check on work availability, you can’t claim a deduction. The cost is not considered to be one that directly relates to your income-producing activities. Instead, it’s an activity that is putting you in a position to earn that income.

You can only claim a deduction for the portion of your phone use when you’re earning assessable income, and your employer requires you to use your phone directly in earning that income.

For more information on costs that are usually considered private or capital in nature and are disallowed or which require apportionments, such as installation costs, line rental, and joint usage expenses,

Working And Studying?

Attending a course or studying for a qualification as part of your job? You can claim a tax deduction for the costs of self-education if one of the following applies to you:

  • At the time the expense was incurred, there was a direct connection between the self-education and your current work activities and income
  • You can show that the study leads to, or may lead to, an increase in income from your current employment or work activities
  • Any other direct connection can be found between the self-education and current work activities

If that sounds like your situation, you can claim the study related portion of your device as a tax deduction.

If the item costs less than $300, you can claim an immediate deduction for the full cost. If the item costs more than $300, you can claim a deduction each year for the decline in value (depreciation). For laptops, this is typically three years and for desktops, typically four years.

Again, you’ll need to keep a diary so you can demonstrate the study-related portion of your device.

Claiming As An Individual

If you’re employed, required to work from home and have recently bought a personal computer, you may be able to claim the value of your computer as a year-by-year depreciation. In saying that, you must genuinely use the computer for work. If you use the computer for both work and private purposes, you can only claim a percentage based on the work-related portion of usage. If you paid for your computer and your employer reimbursed you, you are not eligible to claim a deduction on it.

It’s not just about employees working from home, freelancers who need to purchase equipment such as computers or laptops to do their job may also be entitled to claim some of the cost in their annual tax return. Individuals studying may be eligible to claim some of the cost of a laptop or computer if the self-education directly relates to their current work. There are rules and regulations around all scenarios so before you make any assumptions, always talk to a tax professional to make sure you’re not over-claiming or underclaiming.

Claiming As A Small Business

If you run a small business (a business with a turnover of less than $10 million), you can claim an immediate tax deduction for any assets costing less than $20,000.

This type of deduction is ideal for:

  • Uber drivers
  • People running Etsy and eBay stores
  • Airtasker workers
  • Anyone running a small business

Unless you’re buying a supercomputer, you’ll likely be eligible for an immediate tax deduction on any laptops or desktops purchased for business use.

This includes many devices, such as:

  • Laptops
  • Desktops
  • Tablets
  • Mobile phones
  • Printers

 

If the computer or laptop is only used partly for business purposes, you can only claim a deduction for the business portion of the cost. To do this, you will need to keep a diary over a period of four weeks to establish a pattern of uses. From there, your accountant or tax professional can help you apportion the correct amount and let you know what records you need to keep to substantiate your claim.

In addition to the cost of your computer, as a small business owner, you can also claim your internet costs and expenses relating to setting up and maintaining your computer.

The $20,000 instant asset write-off is available until 30 June 2017. Buy before 30 June this year to claim tax relief in this year’s tax return. Otherwise, you will have to wait until next year to claim the relief.

The asset must be in use by the end of the tax year (30 June) to claim the deduction. If you order an item, but it isn’t delivered until next year, you must make a claim next year.

 

 

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THIS WEBSITE CONTAINS GENERAL ADVICE ONLY AND IS NOT PERSONAL FINANCIAL OR INVESTMENT ADVICE. ALSO, CHANGES IN LEGISLATION MAY OCCUR FREQUENTLY. WE RECOMMEND THAT OUR FORMAL ADVICE BE OBTAINED BEFORE ACTING ON THE BASIS OF THIS INFORMATION. INFORMATION CONTAINED HEREIN HAS BEEN SECURED FROM SOURCES EWM ACCOUNTANTS & BUSINESS ADVISORS BELIEVES ARE RELIABLE, BUT MAKE NO REPRESENTATIONS OR WARRANTIES AS TO THE ACCURACY OF SUCH INFORMATION AND ACCEPT NO LIABILITY. WE SUGGEST THAT YOU CONSULT WITH A TAX ADVISOR, CPA, FINANCIAL ADVISOR, ATTORNEY, ACCOUNTANT, AND ANY OTHER PROFESSIONAL THAT CAN HELP YOU TO UNDERSTAND AND ASSESS THE RISKS ASSOCIATED WITH ANY INVESTMENT.

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