Effective 1 July 2022, the Australian Taxation Office (ATO) introduced changes to how employees and business owners can claim deductions for working-from-home expenses.
You can claim a tax deduction in two ways when you have incurred additional costs because of working from home.
Before we get to the calculation methods, it is worth noting that “working from home” means your work has to be substantive and directly related to your income-producing activities. As such, minimal tasks such as occasionally checking emails or taking phone calls at home will not qualify as working from home for tax deduction purposes.
And, to be eligible to claim, you must have incurred additional costs. This means that if you live in your parents’ home rent-free and don’t contribute to the bills, then you aren’t eligible to claim.
Fixed Rate Method
The simplest method is the “Fixed Rate Method” which gives you a tax deduction of 67 cents per hour worked at home, even if you don’t have a separate room set up as your home office (eg you work from the dining room table).
This method covers expenses such as
- energy bills for lighting, heating/cooling,
- mobile and home internet or data costs,
- mobile and home telephone expenses, and
- stationery and computer consumables like printer cartridges and printing paper.
The rate per work hour (67c) includes the total deductible expenses for the above additional running expenses ie if you are using this method, you can’t claim any additional separate deductions for these expenses. Additional tax deductions can only be claimed for other eligible home office expenses such as depreciation on home office furniture and IT equipment. You can also claim any repairs and maintenance of these items.
What records do you need to keep when using the ATO’s revised fixed-rate method?
Taxpayers who intend to use the ATO’s revised fixed-rate method must still keep receipts, bills or invoices of the running expenses incurred, and a record of the number of hours actually worked from home.
From March 1, 2023, taxpayers are required to keep a record of the actual number of hours worked from home on each occasion (each and every day worked during the whole financial year). These hours can be recorded via a diary entry, spreadsheet or you can download our Working From Home Diary here for your use. We suggest printing and popping under your mouse mat so you don’t forget to record each time you sit down to do some work!
Actual Cost Method
The alternative way of claiming a tax deduction for costs incurred working from home is the Actual Cost Method. To be eligible to use this method, you must have a separate area set aside for exclusive use as your home office.
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
- home and mobile phone, data and internet expenses
- 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 on a “fair and reasonable basis”. You can only claim the work-related portion as a deduction.
Please note that if you are “running a business from home” or working from home because your employer doesn’t provide you with an alternative place to work from there may be additional “occupancy expenses” you can claim.
If you have worked from home during the 2023 income year, it is recommended that you contact the team at DFK Everalls to discuss your situation further, as these changes are likely to affect you.