Clients often ask if they can claim their telephone and internet expenses.  The answer is yes, but then I feel I frustrate them as I have to ask a thousand questions to ensure it is claimed correctly.  There’s never a straight-forward answer when it comes to tax law, the answer is always, it depends.  I’ve set out below as clearly as possible the ins and outs of claiming phone & internet expenses.

Firstly, the over-arching principle with tax law – an expense is deductible if it is necessarily incurred in earning assessable income.  Secondly, there must be appropriate records evidencing the claim.  What does that mean in practice for telephone & internet expenses?

How to claim telephone & internet usage?

Where you have spent less than $50 for the year on business telephone & internet expenses, you don’t need to keep any proof of the claim and you can calculate your claim by using:

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

However, if you want to claim more than $50 then the ATO requires more effort to prove the claim by keeping records for 4 weeks once every year.  This can be by marking off on an itemised bill work versus personal calls or keeping a diary of use.

The 4 weeks chosen must be representative of a reasonable use period.  That is, you can’t keep the diary for example, while travelling for work if you don’t usually travel for work as your telephone costs that month would be expected to be higher than the rest of the year.

Your diary of use can be calculated in 1 of 3 ways:

1. Recording the date and purpose of every call for the month, then at the end of the month adding upon the business calls divided by the total calls multiplied by 100. This is your percentage of business use for the year.
2. Recording the amount of time spent on your phone for business versus personal. Again, at the end of the month add up the total business time divided by the total time multiplied by 100.
3. Record the data downloaded for work versus personal.

A few other tips to note are:

• Don’t forget when working out your claim to deduct any leave periods.
• If an employee, you should also be able to demonstrate that your employer requires you to make work calls and be available by phone.
• Where you employer provides your phone and pays for your calls then there is no tax deduction allowed as you haven’t paid for the expense.
• Telephone costs while looking for work are not tax deductible as no income has yet been earned. Similarly, if you are a casual and phoning in about potential shifts then there is no tax deduction for those calls.
• A deduction is not allowable for the costs of obtaining a silent/unlisted number.

 

How to claim the cost of the device?

If you are an employee and buy a new phone, phone case, cables, dongle or modem, etc and it is under $300 then you can claim a tax deduction at the same rate as the percentage of use determined above.  If the device is over $300 then you can depreciate over its useful life and claim the business portion only.

If you are a small business and buy a new phone, then you can claim the full amount of the purchase price of the equipment up to $30,000 so that means a deduction in full for the phone, phone case, cables, dongle or modem, etc.

Please remember if you are registered for GST then you’ll claim back the business portion of GST on your BAS so you can’t claim the GST component as a tax deduction.

COMPANY

If you operate your business through a company and the telephone account is held in the name of a company then you get a better deal as if the majority, that is more than 50% of the telephone/internet costs is for business, then the full amount of the bill is tax deductible.