Changes to Working from Home Deductions

In response to the evolving landscape of remote work, the Australian Taxation Office (ATO) has introduced updates to the methods taxpayers can use to claim deductions for working from home expenses. The changes aim to better align with contemporary working arrangements and provide more straightforward options for taxpayers. As of 1 July 2022, employees can choose between two methods – the "actual cost" method and the "fixed rate" method – to claim deductions for expenses incurred while working from home.

Eligibility and Record-Keeping:

Before diving into the two methods, it's essential to ensure you meet the eligibility criteria for claiming working from home expenses. To qualify, you must be genuinely working from home to fulfill your employment duties and incur additional expenses as a result.

Regardless of the method you choose, maintaining accurate records is crucial. These records will enable you to select the deduction method that best suits your situation and substantiate your claims during tax time.

Revised Fixed Rate Method:

The revised fixed rate method offers simplicity and convenience for taxpayers. As of the 2022–23 income year, the rate has increased from 52 cents to 67 cents per work hour. This rate covers various expenses related to working from home, such as energy expenses (electricity and gas), phone usage (mobile and home), internet, stationery, and computer consumables.

From 1st July 2022 to 28th February 2023, a record representing the total number of hours worked from home (e.g., a 4-week diary) will be accepted. Starting from 1st March 2023, taxpayers must record the total number of hours worked from home with a logbook or diary detailing the hours and days worked from home.

One of the key advantages of the fixed rate method is that it includes expenses that are challenging for most individuals to calculate accurately, such as phone, internet, and electricity costs.

Assets and equipment, like computers and office furniture can be claimed separately. Please note that if they cost more than $300, or form a set that costs more than $300, that they will need to be depreciated.

Furthermore, taxpayers using the revised fixed rate method are no longer required to have a dedicated home office space to claim working from home expenses.

Actual Cost Method:

The actual cost method remains unchanged, allowing taxpayers to claim the precise work-related portion of all running expenses. This includes keeping detailed records for all working from home expenses, such as receipts, bills, and other documents that demonstrate the incurred expenses, as well as a record of the number of hours worked from home during the income year.

A record representing the total number of hours worked from home (e.g., a 4-week diary) or the number of actual hours worked from home will be accepted.

Under the actual cost method, assets and equipment purchased for work, costing more than $300, cannot be claimed in full immediately. The deduction must be claimed over several years, considering the work portion claimed (known as decline in value or depreciation). The ATO provides online calculators and tools to help taxpayers accurately calculate the decline in value of assets and equipment. The link to the ATO’s online calculator is provided below.

Home Office Expense Calculator

Important Considerations:

Regardless of the chosen method, it's crucial to understand what can and cannot be claimed as working from home expenses. Expenses covered by the revised fixed rate of 67 cents per work hour cannot be claimed additionally under this method.

Additionally, items like general household items (e.g., coffee, tea, milk) or expenses that have already been reimbursed by the employer are not eligible for deductions.

This blog has been prepared for the purposes of general information and guidance only. It should not be used for specific advice or used for formulating decisions under any circumstances. If you would like specific advice about your own personal circumstances, please feel free to contact us on 02 9411 5422. We can help make sure the right method is used to give you the maximum possible tax deduction associated with any of these methods.