Claiming Work From Home Deductions

Revised approach to claiming Work From Home deductions from 1 July 2022.

The revised fixed-rate method introduced by the ATO starting 1 July 2022 offers a new way for individual taxpayers to claim deductions for additional expenses incurred while working from home. Although this method simplifies the calculation of certain expenses with a rate of 67 cents per hour, it also imposes stricter record-keeping requirements for taxpayers compared to the previous shortcut and fixed-rate methods.

Before 1 July 2022, individual taxpayers could choose from three methods to claim additional deductible expenses resulting from working from home: the shortcut method, the fixed-rate method, and calculating actual expenses. The shortcut method allowed for 80 cents per hour, while the fixed-rate method allowed for 52 cents per hour to cover various home office expenses.

However, from 1 July 2022, following the release of PCG 2023/1 by the Australian Taxation Office (ATO), both the shortcut method and the fixed-rate method were abolished. As a replacement, the revised fixed-rate method was introduced, which can be used instead of calculating actual expenses (a method that has not been abolished).

Under the revised fixed-rate method, a deduction can be claimed at a rate of 67 cents per hour for expenses such as energy costs (electricity and gas), internet expenses, mobile and home phone expenses, and stationery and computer consumables. Other expenses associated with working from home, like the depreciation of home office furniture and a personally owned computer used at home for work purposes, need to be calculated on an actual basis when using the revised fixed-rate method.

To claim a deduction under the new fixed-rate method, an individual must meet three criteria:

  1. The individual is working from home while carrying out their employment duties or conducting their business on or after 1 July 2022;
  2. They are incurring additional running expenses of the kind outlined above, as a result of working from home; and
  3. They keep and retain relevant records in respect of the time they spend working from home and for the additional running expenses (covered by the rate per hour) they are incurring.

There are strict record-keeping requirements associated with this new method. For the year ending 30 June 2023 there are essentially two methods. From 1 July 2022 to 28 February 2023, a taxpayer must keep a record representative of the total number of hours worked from home.

For the period 1 March 2023 to 30 June 2023 the taxpayer must maintain a record of the total number of actual hours they worked from home. The record of the actual hours worked from home can be maintained using various methods, such as timesheets, rosters, time-tracking apps, logs of time spent accessing employer systems or online business systems, or a diary kept contemporaneously.

For the year ending 30 June 2024 and later income years, a taxpayer using this method must also keep a record of actual hours worked from home for the entire year.

This is a significant change from the shortcut and previous fixed-rate methods, which allowed estimates for hours worked from home. Additionally, taxpayers must now maintain at least one monthly or quarterly bill for running costs like energy, phone, and internet expenses, as the ATO requires proof of incurred costs represented by the 67 cents per hour deduction. This increases the record-keeping burden on taxpayers.

As the work-from-home trend continues, it is crucial for taxpayers to familiarize themselves with these new rules and methods to ensure they are accurately claiming deductions and complying with the ATO's requirements. This may involve seeking professional advice or utilizing available resources and tools to facilitate record-keeping and expense tracking.

For more information, visit the ATO website.

Ref:  ATO Practical Compliance Guide


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