Deep Dive: Tax Deduction for Working from Home

The ATO recently announced a significant change to the way working from home (WFH) deductions needs to be substantiated if you have been using the fixed rate method/short-cut method to claim your deduction. With this change, now is the perfect time to get updated on the change and review the existing rules, including using the alternative actual cost method.

The rules from 1 July 2022

The fixed rate method for claiming WFH expenses of 80 cents per hour, available during the covid years, came to an end on 30 June 2022. The 80 cents per hour short-cut method was replaced with 67 cents per hour fixed rate method. This rate covers:

• home and mobile internet or data expenses

• mobile and home phone usage expenses

• electricity and gas (energy expenses) for heating, cooling and lighting

• stationery and computer consumables, such as printer ink and paper.

If you choose to use the fixed rate you cannot claim separate expenses for any of the listed expenses.

Items not covered by the fixed rate

You can separately claim a deduction for the work-related use of technology and office furniture such as chairs, desks, computers, bookshelves. These are generally depreciating assets that decline in value over time. You can also claim the repairs and maintenance of these items.

If an item costs $300 or less and you use it mainly for a work-related purpose, you can claim an immediate deduction for the cost in the year you buy it. This may include items, such as keyboards, computer mouses, power boards, desk lamps and chargers.

You can claim a deduction for the decline in value of depreciating assets over the effective life of the item, if it either:

• cost more than $300

• forms part of a set that together cost more than $300.

Where you use your depreciating assets for both work and private purposes, you need to apportion your decline in value deduction. You can only claim the work-related portion as a deduction.

Record keeping

To claim a tax deduction for WFH expenses you need to have kept records to substantiate the number of hours worked from home.

For the 2022–23 income year only, you must be able to provide both:

• A representative record of the total number of hours WFH during the period 1 July 2022 to 28 February 2023 - for example, any kind of record of the hours you worked from home for a particular period that you can apply to the whole 8 month period.

• A record of the total number of actual hours worked from home for the period 1 March 2023 to 30 June 2023 - for example, a timesheet, roster, diary or other similar document.

From 1 July 2023 onwards you will need to keep a record of the actual hours worked from home for the full year.

From 1 March 2023 onwards you will need to keep at least one record for each of the additional running expenses you incur that the rate per work hour includes – for example, if you incurred electricity and stationery expenses keep one quarterly bill for your electricity expenses and one receipt for your stationery expenses in each of the years that you claim the deduction.

Records need to be kept for a period of 5 years from the time you lodge your tax return.

Actual cost method

Using the actual costs method, you work out your deduction by calculating the actual additional expenses you incur when working from home. This includes expenses you incur for:

• the decline in value of depreciating assets – for example, home office furniture (desk, chair) and furnishings, phones and computers, laptops or similar devices.

• electricity and gas (energy expenses) for heating, cooling and lighting. This can be worked out by using the:

  • cost per unit of power you use (your electricity bill has this information)

  • average units you use per hour, which is the power consumption per kilowatt hour for each appliance, equipment or light used

  • total annual hours used for work-related purposes by checking your records of hours worked or your diary.

• Home and mobile phone, data and internet expenses. If you receive an itemised phone or internet bill, you need to work out your work-related use over a continuous 4-week period. You can use your work-related percentage for the 4-week period to work out your expenses for the whole income year.

For example, you can mark your work-related calls on your monthly phone bill and work out your work-related use based on the number of those phone calls compared to your total calls.

• Stationery and computer consumables, such as printer ink and paper

• Cleaning your dedicated home office.

Where you incur running expenses for both private and work purposes, you need to apportion your deduction. You can only claim the work-related portion as a deduction.

Record keeping for the actual cost method

To claim your work from home expenses using actual costs, you must keep either a record showing:

• the number of actual hours you work from home during the entire income year – for example, a timesheet or spreadsheet

• a continuous 4-week period that represents your usual pattern of working at home – for example, a diary.

You must also keep records that show:

• the additional running expenses you incurred while working from home, such as receipts, bills and other documents

• how you worked out the amount of your deduction.

Choosing which method

Ultimately which method you choose is up to you. Often it is determined by the quality of records kept and then which method provides you with the best deduction.

With the changes in record keeping requirements for the fixed rate method, one thing is for sure, it’s not going to be as easy to claim WFH expenses moving forward.

If you would like specific advice tailored to your business and circumstances, Accounting Heart offers affordable service packages where you can work with Sonia one-on-one to help you get your business where you want it to be. Book your FREE Discovery Call to find out more.

Disclaimer: This is general information only and is not advice of any sort. No warranty or representation is provided by Accounting Heart Pty Ltd as to the accuracy, currency or completeness of the information contained in this blog. Readers of this blog should not act or refrain from acting in reliance upon any information contained herein and must always obtain appropriate taxation and / or other advice as may be appropriate having regard to their particular circumstances.