Working From Home Deduction Reform

Written by: Institute of Certified Bookkeepers

Working From Home – Modernised Fixed Rate Method

The method by which taxpayers claim deductions for costs incurred when working from home has been updated by the Australian Taxation Office (ATO). The modifications are intended to represent current work-from-home arrangements more accurately but require more precise record keeping.

This temporary shortcut method of 80 cents per hour, introduced during the pandemic, applied from March 2020 and ended on the 30th of June last year, meaning taxpayers can no longer use it for this year’s tax return. Taxpayers can choose one of two methods to claim working from home deductions: either the “actual cost” or “fixed rate” method. Only the fixed rate method is changing.

The revised fixed rate method applies from 1st July 2022 and can be used when taxpayers are working out deductions for their 2022–23 income tax returns.

New Fixed Rate Method

The revised fixed rate of 67 cents per work hour covers total deductible expenses such as energy expenses (electricity and gas), phone usage (mobile and home), internet, stationery, and computer consumables. No additional deduction for any expenses covered by the rate can be claimed if you use this method.

This means that taxpayers cannot claim an additional separate deduction for items like a mobile phone when working from home, as the assumed cost is already included in the 67 cents rate.

However, the decline in value of assets used while working from home, such as computers and office furniture, repairs and maintenance of these assets, and costs associated with cleaning a dedicated home office need to be calculated and claimed separately.

It is Important to Maintain Records

The revised fixed rate method doesn’t require taxpayers to have a dedicated home office space to claim working-from-home expenses, but there are stricter guidelines for record keeping.

The total number of hours that taxpayers work remotely must be reported. Beginning on March 1st 2023, taxpayers must retain a record of all hours worked remotely for the whole income year. The ATO will no longer accept estimates.

As long as they are recorded as they happen, records of hours worked from home can be kept in any format, such as a diary or any similar document, such as timesheets, rosters, logs of the time spent logging into employer or business systems.

The fixed rate per hour reimburses any expense that taxpayers have incurred and must be recorded and documented (for example, if taxpayers use their phone and electricity when working from home, they must keep one bill for each of these expenses). You can’t claim a deduction if you don’t have a record.

Be aware that this is being introduced retrospectively. If you plan to use the revised fixed rate method for your 2022–23 tax return, you need to have the following:

  • From 1st July 2022 to 28th February 2023: a record representative of the hours worked from home (e.g. diary notations or a work record showing start and finish times for at least 1 month of work as a representative period of time for the year).
  • From 1st March 2023 to 30th June 2023: a record of the total number of hours worked from home (such as a timesheet, roster or diary) as well as evidence you paid for each of the expenses incurred that are covered by the fixed rate method (for example, a phone or electricity bill). You will also need records for any equipment bought to work from home, like technology or furniture (which provides details of the supplier, cost, and date acquired).

There haven’t been any modifications for those who choose to employ the actual cost method. The actual portion of any running expense that relates to work is still deductible by the taxpayer. This entails maintaining thorough records for each and every expense incurred while working from home.

Source: ATO – Working from home expenses

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