Substantiation for mobile, home phone and internet costs

Provided by Tax & Super Australia

The ATO has issued guidance on making claims for mobile phone use as well as home phone and internet expenses. Substantiation for mobile, home phone and internet costs

It says that if a client uses any of these for work purposes, they may be able to claim a deduction if there are records to support claims. But the ATO points out that use for both work and private use will require a taxpayer to work out the percentage that “reasonably relates” to work use.

Substantiating claims
The ATO requires that records are kept for a four-week representative period in each income year to claim a deduction of more than $50. These records can include diary entries, including electronic records, and bills. “Evidence that your employer expects you to work at home or make some work-related calls will also help you demonstrate that you are entitled to a deduction,” its guidance says.

When your client can’t claim a deduction for their phone
Of course if their employer provides your client with a phone for work use and also pays for usage (phone calls, text messages, data) then they are not able to claim a deduction. Similarly, if your client pays for usage but are subsequently reimbursed by their employer, they are not able to claim a deduction.

How to apportion work use of the phone
As there are many different types of plans available, your client will need to determine the work use using a reasonable basis.

Incidental use
If their work use is incidental and they are not claiming a deduction of more than $50 in total, they can make a claim based on the following, without having to analyse their bills:

  • $0.25 for work calls made from a landline
  • $0.75 for work calls made from a mobile
  • $0.10 for text messages sent from a mobile.

Usage is itemised on bills
If they have a phone plan where they receive an itemised bill, they need to determine their percentage of work use over a four-week representative period, which can then be applied to the full year.

They need to work out the percentage 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 total calls
  • the amount of data downloaded for work purposes as a percentage of total downloads.

Usage is not itemised on bills
If they have a phone plan where they don’t receive an itemised bill, they can determine their work use by keeping a record of all calls over a four-week representative period and then calculate their claim using a reasonable basis.

The ATO uses an example to further explain this.
Ahmed has a prepaid mobile phone plan that costs him $50 a month. He does not receive a monthly bill so he keeps a record of his calls for a four-week representative period. During this four-week period Ahmed makes 25 work calls and 75 private calls. He worked for 11 months during the income year, having had one month of leave. He therefore calculates his work use as 25% (25 work calls out of 100 total calls). He claims a deduction of $138 in his tax return (25% x $50 x 11 months).

Bundled phone and internet plans
Nowadays phone and internet services are often bundled together. The ATO says that when taxpayers are claiming deductions for work-related use of one or more services, they need to apportion their costs based on their 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 a taxpayer has a bundled plan, they need to identify their work use for each service over a four-week representative period during the income year. This will allow them to determine their pattern of work use, which can then be applied to the full year.

A reasonable basis to work out their 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 the household
  • any additional costs incurred as a result of work-related use – for example, if work-related use results in them exceeding their 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 total calls
  • any additional costs incurred as a result of work-related calls – for example, if work-related use results in them exceeding the monthly cap.

Again, the ATO uses a worked example to illustrate.

Des has a $90 per month home phone and internet bundle, and unlimited internet use as part of his plan. There is no clear breakdown for the cost of each service. By keeping a record of the calls he makes over a four-week representative period, Des determines that 25% of his calls are for work purposes. Des also keeps a record for four weeks of the data downloaded and determines that 30% of the total amount used was for work.

He worked for 11 months during the income year, having had one month of leave. As there is no clear breakdown of the cost of each service, it is reasonable for Des to allocate 50% of the total cost to each service.

Step 1 – work out the value of each bundled component.
Internet: $45 per month ($90/2 services).
Home phone: $45 per month ($90/2 services).

Step 2 – apportion your work related use.
Home phone: 25% work related use x $45 per month x 11 months = $124.
Internet: 30% work related use x $45 per month x 11 months = $149.
In his tax return Des claims a deduction of $273 ($124 + $149) for the year.