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Income Tax 2021: Tax Deductions On Work From Home Expenses
The deadline for employers to file employee earnings was last week, so employees should have received their Tax Form IR8A to complete their own income tax filing. This is important because the deadline for filing income tax is 18 April 2021. (Note that for paper filing instead of e-filing, the deadline is 15 April 2021.)
Another thing employees should take note of is that if they may claim personal income tax deductions on allowable employment expenses.
What are allowable employment expenses
Employment expenses are essentially expenses which are 'wholly and exclusively' incurred in the production of your employment income in Singapore. These expenses may be deducted from your employment income when filing for income tax if:
They were incurred while carrying out your official duties;
They were not reimbursed by your employer; and
They were not capital or private in nature.
Examples of allowable employment expenses include:
Entertainment expenses incurred in entertaining clients (excluding your share of the entertainment expenses)
Mosque building fund, zakat fitrah or any other religious dues authorised by law.
Subscriptions paid to professional bodies or society for professional updates, knowledge and networking.
Travelling expenses incurred on public transport (buses, trains, taxis). Travelling in private vehicles does not count. Travelling expenses incurred from travelling between home and office are also not valid.
Working from home expenses
In addition, if you are working from home and the resulting home office expenses are not reimbursed by your employer, these expenses will also be considered allowable employment expenses and you can claim these expenses as a deduction against your employment income for the year.
Such expenses largely pertain to electricity and telecommunications expenses.
Since it is almost impossible to determine exactly how much electricity and phone usage is down to work and how much is down to private home usage, the IRAS has decided to simplify the process as such:
For monthly electricity and telecommunications bills, you may compare the bills before and after working from home. The difference in the charges between before and after working from home can then be claimed for deduction as work expenses.
For WiFi expenses, the monthly subscription charges can be claimed as a deduction only if the WiFi was specifically set up to enable you to work from home. No deduction can be claimed if the WiFi was already set up prior to working from home. One-time charges, such as installation or connection fees, also cannot be claimed as they are capital in nature.
If there are more than one person working from home in the same household, IRAS is prepared to accept an “equal apportionment basis” for computing the amount of shared expenses applicable to each person.
This basically means if there are 2 people working in the same home, then the aforementioned example of S$10 difference in electricity charges between March and April 2020 can then be split between each working member, and they can both claim for S$5 in tax deductions.
Filing for income tax is a pretty straightforward process as you can do it online via myTax Portal or by paper filing.
Simply enter your allowable employment expenses claim under the “Employment” section.
However, you must also ensure that you keep proper records of these expenses that you have filed for. This is for auditing purposes. These include business expense receipts, invoices, receipts, vouchers, and other relevant documents. IRAS also has an Employment Expenses Schedule template that you can use to organise your expenses record.
These records must be kept for five years. So records of any employment expenses incurred in 2020 that you are claiming for tax deductions in Year of Assessment 2021 must be kept until 2025 before they can be disposed of.
Not just because of Covid-19
In a year fraught with financial uncertainty, we need to keep hold of every penny we can. That the taxman has made it easier to claim tax deductions on work-from-home expenses is a small boon that we should take advantage of fully, even if it is a little tedious.
However, these tax deductions are not only applicable during this coronavirus-induced recession. Moving forward, as working from home becomes much more prevalent, these tax deductions will still apply for future income tax assessment years.
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