Posted on 5/5/2023
The Australian Taxation Office (ATO) has released updated guidelines for workers on claiming tax deductions for working from home (WFH) expenses, which includes stringent record-keeping requirements and a new hourly rate.
Headlining the key changes announced by the ATO are:
The temporary ‘shortcut’ method, which was legislated during the COVID-19 pandemic, ended on 30 June 2022. From 1 July 2022, only the new revised fixed-rate method and actual cost method are available to calculate working from home tax deductions. Therefore, it’s important to understand each of the options available and what requirements need to be met in order to be eligible.
Two different options – which is right for you?
Following the reduction in available calculation methods for working from home deductions, workers are now limited in their choices and must comply with more stringent record-keeping requirements.
The two available methods for claiming Work from Home tax deductions are as follows:
The revised fixed-rate method
To be eligible for this method, you must:
You can claim 67 cents for each hour you work from home during the relevant income year. This rate includes additional running expenses you incur for:
Be aware that the rate per hour method includes the total deductible expenses for the above expenses. If you are using this method, you can’t claim additional separate deductions for these expenses.
However, you are able to separately claim a deduction for the work-related use of technology and office furniture such as chairs, desks, computers and bookshelves. For these items, you can claim:
More stringent records must be kept to use the revised fixed-rate method. These include:
For depreciating assets, records must be kept that show the amount spent on depreciating assets you buy and the percentage of the year you use these assets exclusively for work in a diary or similar document.
These records must be kept for 5 years from the date you lodge your tax return.
However, the ATO has stated that for the 2023 income year, the ATO will accept a representative record of hours worked from 1 July 2022 to 28 February 2023. From 1 March 2023, taxpayers will need to record the total number of hours they work from home in a diary or similar format as mentioned above.
Removal of designated home office requirement
Under the previous fixed rate method, a designated home office space was required to claim home office deductions. Under the revised method, this requirement has now been removed.
Actual cost method
The alternative to using the revised fixed-rate method is the actual cost method which involves calculating the actual expenses incurred as a result of working from home.
For each of the eligible expenses noted above under the revised fixed-rate method, you will need to split them between work and private, while also being able to substantiate each individual expense with calculations, invoices and receipts.
Under this method, you are also able to claim cleaning expenses if you have a dedicated home office if you apportion the claim for any private use of the office and use of the home office by other members of your household.
With more stringent record-keeping requirements in place from March, it is important that individuals keep track of the number of hours from which they work from home going forward. This could be done through a spreadsheet or in a written diary.
It is also important that receipts relating to home office expenses are kept and stored. Whilst keeping in line with ATO record-keeping requirements, this also ensures that deductions are not missed when completing your tax return.
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