The Australian Taxation Office (ATO) has changed the way that taxpayers claim deductions for costs incurred when working from home – and the rules have got substantially more complicated. The new rules, which were introduced on February 16, 2023 but are applicable from July 1, 2022 mean workers can no longer claim the shortcut method (80 cents per hour) or the 52 cents per hour fixed rate method.
ATO’s revised fixed rate method
The revised fixed rate method, applicable July 1, 2022 onwards means the the fixed rate amount is 67 cents per hour.
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What’s covered by the rate?
The revised fixed rate of 67 cents per work hour covers:
Energy expenses (electricity and gas)
Phone usage (mobile and home)
Stationery and computer consumables.
No additional deduction for any expenses covered by the rate can be claimed if you use this method but phone usage and internet expenses are now included in the fixed rate method. These were previously excluded from the fixed rate method, which allowed a separate deduction to be claimed for these expenses.
Note that under the new rules, if you use your mobile phone for work purposes when you are out-and-about, as well as at home, you can no longer claim a separate deduction for this use and still use the fixed-rate method. If you want to claim actual use of your mobile phone (or home internet), you must claim using the actual method for all working from home expenses.
What can be claimed separately?
Workers who work from home can also claim the decline in value of assets used while working from home, such as computers and office furniture, repairs and maintenance of these assets and any costs associated with cleaning a dedicated home office.
Compliance and substantiation
The biggest burden of the new fixed rate is the amount of substantiation required to make a claim. You need to keep a record of all the hours worked from home for the entire income year. This obligation kicks in from March 1, 2023. Before then, a four-week representative diary or similar document will be required for the period July 1, 2022 to February 28, 2023. The ATO won’t accept estimates, or a four-week representative diary or similar document for any period after March 1, 2023.
Records of hours worked from home can be in any form provided they are kept as they occur, for example, timesheets, rosters, logs of time spent accessing employer or business systems, or a diary for the full year.
Records must also be kept for each expense that you have incurred which is covered by the fixed rate per hour (for example, if you use your phone and electricity when working from home, you must keep one bill for each of these expenses).
Actual cost method
The actual cost method hasn’t changed meaning you can claim the actual work-related portion of all running expenses.
Compliance obligations for this include keeping detailed records for all the working from home expenses being claimed, including:
All receipts, bills and other similar documents to show you have incurred the expenses, a record of the number of hours worked from home during the income year (either the actual hours or a diary or similar document kept for a representative four-week period to show the usual pattern of working at home).
A record of how you have calculated the work-related and private portion of the expenses (for example, a diary or similar document kept for a representative four-week period to show the usual pattern of work-related use of a depreciating asset such as a laptop).
Many taxpayers find the substantiation requirements involved in claiming the actual cost method burdensome and time consuming, hence the popularity of the fixed rate. But now, the fixed rate comes with its own burdensome compliance obligations, which is bound to prevent many taxpayers from claiming at all.
Tips and traps for working from home claims
1. Educate yourself
Educate yourself about how these new rules work and the new compliance obligations.
2. Substantiate your expenses
If you don’t have proof of how many hours you worked from home plus a copy of at least one bill for each of the expenses, you won’t be permitted to use the fixed rate and are unlikely to be able to claim the actual rate either. You need full substantiation of all the expenses.
3. You don’t need a home office to claim
Good news for people working from small or crowded properties – the fixed rate will now be available where you don’t have a dedicated home office. So, if you work from the kitchen table or the lounge sofa, you can still claim the fixed rate (this is one of the few improvements of the new rules compared to the old ones).
Warning: If you claim actual costs, you do still need a dedicated home office.
4. What is working from home?
The ATO won’t allow you to claim for minimal tasks such as occasionally checking emails or taking telephone calls while at home.
5. You must incur additional costs to claim
If you live with your parents or others and don’t pay a market rent to live in the property, you can’t claim. For example, if you live with your parents and pay a token amount of board you can’t claim, even if you have a dedicated home office, because you don’t incur any additional costs to work from home.
The parent would likely incur additional costs but as they aren’t the ones working from home, they can’t claim. The ATO disregards token amounts of board for these purposes.
6. Make sure you get help and advice
An H&R Block tax agent will help you to maximise your refund, save you time, and reduce the amount of stress involved in the process.