Claiming work from home deductions in your tax return is set to be a whole lot harder with ATO confirming changes to what can be claimed and the requirements that must be met.
The events of the past few years, and our changing work landscape in general, have certainly seen a big increase in the amount of time that Australian taxpayers are spending working from home. This means that the amount of people seeking to claim work from home deductions, and the related amounts that they are claiming, has jumped too. In response, the ATO has sought to clarify and refine the details surrounding working from home deductions. The new guidelines cover what can and cannot be claimed, as well as what you need to know, and do, in order to successfully claim your eligible work from home deductions.
New Guidelines for Work from Home Deductions from 1 March 2023
The guidelines, which outline a new method for claiming working from home expenses, were published on 2 November 2022 and completed on 16 February 2023.
When you look at it closely, you can see that what this really means is that the ATO will be imposing more stringent requirements in order for workers to be able to make a claim for work from home related deductions.
So it is important to ensure that you are aware of what has changed and what you need to do in regards to claiming your work from home deductions in the current financial year and beyond.
Previous Options & Requirements to Claim Work From Home Deductions
Prior to 1 July 2022 and the subsequent release of the new guidelines, the options and requirements for claiming work were:
- Shortcut method – 80 cents per hour
- Fixed Rate method – 52 cents per hour
- Actual Costs – calculating and claiming actual expenses
The Shortcut method of 80 cents per hour flat rate was introduced in March 2020 as a shortcut way for workers to claim various costs associated with working from home during the pandemic. As the effects of Covid-19 continued to impact our working lives, the 80c rule was extended, but has now ceased as at 30 June 2022.
The 80c rule allowed workers to claim a portion of the costs of work related energy, internet and phone usage. The only requirement was to have a record that was representative of time spent working from home. And then the amount of hours was multiplied by 80c to calculate the deduction to be claimed.
The Fixed Rate method of 52 cents per hour flat rate was a combination method of sorts. It allowed for a deduction for electricity and gas expenses, home office cleaning expenses and decline in value of furniture and furnishings at a rate of 52c per hour worked from home. Tax payers could also claim a separate deduction for work-related internet, mobile and home phone, stationery and computer consumables expenses as well as the decline in value of a computer, laptop or similar device, based on actual costs.
Similar to the shortcut method, for the fixed rate portion of your deduction you were required to have a record that was representative of time/number of hours spent working from home. It was acceptable to have records for a 4 week period that could be used to calculate total hours across the year (assuming that your work pattern was regular across the year).
For the separately deducted items such as phone and internet expenses you needed to have receipts or other written evidence of costs, phone accounts to allow you to identify the percentage of work-related usage and a diary for internet usage and calculating percentage use of depreciating assets used exclusively for work.
As it’s name states, the Actual Costs Method is claiming deductions as a proportion of actual costs incurred.
Changes to Claiming Work From Home Deductions
The new guidelines will replace the 52 cent fixed rate method with a 67 cents per hour flat rate. Initially that looks like a better deal, but the 67 cents flat rate does not allow for separate deductions for expenses such as phone and internet. This will ultimately result in a decreased deduction amount for most people, unless you opt to use the actual costs method for each work from home related expense item.
Similar to previous deductions methods, in order to be eligible to claim your deductions under the new guidelines, you just satisfy the following criteria:
- working from home
- incurring deductible additional running expenses
- keeping and retaining relevant records
What and how you can claim, as well as record keeping requirements are perhaps the most notable changes under the new method.
Some of the important things/changes to know about the revised fixed rate method of 67 cents per hour flat rate include:
- The rate per hour calculates the total of your deductible expenses for energy, internet, mobile and/or home telephone and stationery and computer consumables for the income year
- This means you cannot claim an additional separate deduction for any of these expenses
- You are not required to have designated work space at home
- You must keep a record of time spent working from home
- for the period from 1 July 2022 to 28 February 2023 – a record which is representative of the total number of hours worked from home,
AND - for the period 1 March 2023 to 30 June 2023 – a record of the total number of actual hours you worked from home.
- for the period from 1 July 2022 to 28 February 2023 – a record which is representative of the total number of hours worked from home,
- keep evidence for additional running costs incurred – such as an invoice, bill or credit card statement, for each of the additional running expenses which you have incurred during the income year. You must keep at least one monthly or quarterly invoice for each of these expenses.
- Taxpayers will be able to make separate claims for depreciating office equipment and furniture.
- Items like furniture costing less than $300 can be claimed in one financial year.
ESTIMATES NO LONGER ACCEPTED: It is important to note that under the new guidelines, an estimate for the entire income year 2023-24 and later years, or an estimate based on the number of hours you work from home during a particular period and applied to the rest of the income year will not be accepted (as it was with previous methods). A record of your hours for the income year can be in the form of: timesheets, rosters or a diary or similar document kept contemporaneously.
From 1 July 2022, in order to be able to use the Actual Costs Method, workers will be required to:
- have designated work area not shared with other areas of the home
- keep records (eg. receipts or other written evidence) to show the amount:
- spent on expenses, including the costs of heating and cooling the designated work area
- spent on depreciating assets you buy and use while working from home
- of work-related use for your expenses and depreciating assets.
Start the Year Off Right
With the added requirements for record keeping in regards to work from home deductions already in effect, it is important to step off on the right foot in 2023 to avoid any potential issues or disappointment when it comes to claiming your deductions at tax time.
The team of tax experts and accountants at The Quinn Group can help to ensure that you are on the right track with your tax deduction requirements and provide any other tax advice that you might need. Please contact us by calling + 61 2 9223 9166 or submit an online enquiry to arrange an appointment for advice regarding your individual tax requirements.
