Three Ways To Claim Your Laptop As A Tax Deduction

In today’s digital world, owning a computer, or a laptop is a must. A huge percentage of jobs will incur some sort of computer and digital use and claiming your computer or laptop can gain you a few extra dollars at tax time, especially those who work from home or work remotely.

Claiming TAX Deduction for Work Related Electronic Devices is a Must?

Computers and laptops used for work, or partly for work, may generally claimed as a tax deduction, with the claim adjusted to include the percentage of business or work use.

Using the Tax Office’s (ATO) determined rates, the deductible cost of a computer can be claimed over 4 years; laptops and tablets over 2 years. Anything under $300 for work-related non business use is also claimable in the year of purchase. For small businesses, the instant asset deduction rules may also provide a full deduction in the first year.

How Can You Claim Your Laptop?

To start with, you can only claim the work-related cost of your laptop. The Australian Taxation Office (ATO) realises that most people will use their laptops privately as well as for work. If you claim 100%, you’re liable to risk red-flagging the ATO for an audit, and no one wants that.

In order to work out your work-related use, the ATO requires you to keep a work diary detailing your computer usage for a minimum of 4 weeks. You’ll need to note the date, a quick summary of your work tasks, the time spent on your computer for work and for personal use. You’ll need to keep a log of your activities consecutively, which can then be averaged for the year. If your work use changes, it will pay to start a fresh diary.

Proof of Expense or How To Keep Your Bills Straight

You’ll need to prove your expense (Proof of Expense), so keep your receipts, tax invoices, contracts, work diaries and communications from your financial institutions.

The ATO requires certain information on your proof of purchase, so make sure it holds the supplier’s name, the cost of your laptop, the date you bought your laptop and a description of your purchase.

Digital Tax Tip: If you run a business or are a freelancer and earn less than $5 billion in aggregated turnover per year, you’ll be able to claim an immediate deduction for most assets purchased between 6 October 2020 and 30 June 2023. Businesses with a turnover of more than $50 million but less than $5 billion is restricted the immediately claiming new assets only.

From 1 July 2023, businesses with a turnover of less than $500 million can claim a full deduction under the Asset Write-Off provisions, but is limited to assets of a cost less than $1,000.

Digital Work Equipment (computers) Depreciation

The current Effective Life estimates for computers under Table B are:

• Computers – effective life of 4 years
  Under the depreciation formula, this converts to a Diminishing Value percentage rate of 50% per financial year (annum) or Prime Cost 25%
• Mobile/Portable Computers (including laptops and tablets) – effective life of 2 years (from 1 July 2016)
  Under the depreciation formula, this converts to a Diminishing Value percentage rate of 100% or Prime Cost 50%

The diminishing value and prime cost calculation methods are explained here.

Deduction or Depreciation - that is a question?

To deduct or to depreciate? That is the question, and it depends on the cost of your purchase and whether you are an employee or a business.

As an employee, if your laptop costs $300 or less, you can claim an immediate deduction in the year in which you bought the item. If your laptop costs over $300, and most of them will, then you’ll need to depreciate the laptop over 2 years.

Digital Tax Tip: The ATO states that the life of a laptop is 2 years, and a desktop computer is 4 years. Tablets and ipads can be depreciated over 2 years.

If you hire or lease your laptop, the work-related part of the fee can be claimed in the same year as a running cost, and not a capital purchase.

Digital Tax Tip: In order to claim your laptop as a work-related expense, you’ll need to be able to relate it directly to your job and have a genuine reason and requirement for using it for work.

Other Work Related Electronic Items

It’s not just laptops that can be claimed. Items such as desktop computers, modems, monitors, tablets, mobile phones and printers can be claimed. These items are regarded as capital purchases and may need to be depreciated over a set time, which the ATO sets, however there are also running costs that these items will incur.

Running costs for computers include:

• Internet fees
• Electricity
• Repair and maintenance of equipment
• Software programs
• Hosting fees
• Cloud storage
• Consumables such as ink and paper
• Costs related to setting up and maintaining your computer

Digital Tax Tip: You can only claim a tax deduction if you incurred the cost and are out-of-pocket for it, and you weren’t reimbursed by your employer.

Are you a sole trader or a company director? Australian companies can claim tax relief at a rate of 25%. Sole traders can claim a marginal tax rate between 9% and 45% excluding the Medicare Levy.

Employees – Work-related expenses

Employees can claim their computer costs to the extent that they directly relate to the earning income from their employment.

All non-business taxpayers can claim a full deduction if the computer, laptop or tablet costs no more than $300. Where the cost is more than $300 then the depreciation formula must be used to calculate the percentage tax deductible amount.

There are 4 pre-conditions on the under-$300 full claim allowance:

1. the cost is less than $300
2. the asset is used for non-business purposes, e.g. as an employee
3. the asset is not part of a set costing more than $300
4. the asset isn’t one of a number of identical or substantially identical assets that together cost more than $300

See more information about this claim method here (including examples of sets and substantially similar items).

Small claims can also be included in the $300 minor expenses limit for which written evidence is not required. Otherwise – as is more often the case given the relatively high cost of computers – evidence of expenditure, usually in the form of receipts, and a record of work-related use (such as a diary) will normally be required to support a claim.

Such work-related claims, also encompass deductions for associated expenses such as internet usage, loan interest (on the purchase cost) and repairs.

ATO announced crackdowns in working from home expenses and related items

ATO: Employees working from home may be able to claim a deduction for the expenses you incur relating to your work. This year, more than any other, the ATO has announced crackdowns in working from home expenses and related items.

It pays to know exactly what you can claim and how much is work-related so that you don’t trigger an ATO audit. Tax experience is a huge advantage when it comes to deducting all eligible costs and making the most from your tax return. 

Eligibility to claim working from home expenses

To claim your working from home expenses, you must:

• be working from home to fulfil your employment duties, not just carrying out minimal tasks, such as occasionally checking emails or taking calls
• incur additional expenses as a result of working from home.

You can claim a deduction for the additional running expenses you incur as a result of working from home.