The ATO’s New Working From Home Deduction Rules

February 22, 2023

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The ATO has released its final guidance about how taxpayers can claim deductions for additional running expenses incurred while working from home from 1 July 2022.

Additional running expenses vs. occupancy expenses

There are two categories of working from home expenses. Running expenses relate to the use of facilities within your home (e.g. electricity, depreciation, internet and phone), and occupancy expenses are what you pay to own, rent or use your home (e.g. mortgage interest, rent, rates and home insurance). The revised ATO guidance, and this article, only relate to the claiming of additional running expenses incurred as a result of working from home. For advice on the deductibility of occupancy expenses, please get in touch with us as they can have capital gains tax (CGT) implications for your home.

Before 1 July 2022

Before 1 July 2022, to calculate a deduction for expenses incurred as a result of working from home, taxpayers had the choice of using one of the following methods:

  • Shortcut method — available from 1 March 2020 to 30 June 2022 — allowed 80 cents per hour for each hour a taxpayer worked from home. This temporary method was intended to provide administrative relief for the many people forced to work from home temporarily during COVID restrictions
  • Fixed-rate method — available from 1 July 1998 to 30 June 2022 — allowed 52 cents per hour for each hour a taxpayer worked from home (a revised fixed-rate method applies from 1 July 2022 — see below)
  • Actual cost method — calculating the actual expenses incurred as a result of working from home.

Changes from 1 July 2022

From 1 July 2022, the shortcut method is no longer available. Instead you can only claim working from home expenses using either:

  • Revised fixed-rate method — allowed 67 cents per hour for each hour. The running costs included have changed and there are more record-keeping requirements.
  • Actual cost method – unchanged.

Changes  to the Fixed Rate Method

To be eligible to claim the revised fixed-rate method, you must meet all the following criteria:

  1. Work from home must be substantive and directly related to the income producing activities. Minimal tasks like checking emails or making work related phone calls will not be considered substantive. You will not be required to have a designated workspace at home.
  2. You must incur additional running expenses and must not be reimbursed for the costs. Employees who work from home two days a week but reside with their parents and do not contribute to the running costs will not be eligible to claim a home office deduction. Additional running costs include internet, electricity, mobile phone and stationery expenses.
  3. You must keep relevant records for the time spent working from home. Timesheets or rosters need to show the exact number of hours spent working from home. The old method of keeping a diary for one month and extrapolating that over the year will not be accepted. Under the transition rules from 1 July 2022 to 28 February 2023, the ATO will accept a record that represents the total number of hours worked from home (for example a four week diary). You must also provide at least one invoice for the additional running costs such as electricity, internet, mobile phone or stationery. If the invoice is not in your name, you must show evidence that the expense is shared. This could include a bank transaction or evidence that the bank account used to pay the expense was a shared account.

This method covers the cost of electricity, internet, mobile and stationery, on what the ATO considers to be a fair and reasonable basis. This means you cannot claim a separate deduction for any of these expenses. You may still claim depreciation for assets used to carry out your employment duties, however you must keep a four-week record to show personal and income producing use of the depreciating assets.

Note that if you lodge an objection in relation to your working from home expenses for whatever reason — only the actual expenses incurred as a result of working from home and for which you have adequate records will be allowed as a deduction.

The Actual Cost Method – unchanged

The actual cost method allows you to claim a deduction for the actual expenses you incur as a result of working from home. You may be able to claim a deduction for each of the expenses you incur, such as:

  • Internet
  • Mobile and home phone usage
  • Electricity and gas (for lighting, heating, cooling and electronic items used)
  • Computer consumables (e.g. printer ink)
  • Stationery
  • The decline in value of assets used while working from home, such as computers and office furniture, as well as any maintenance and repairs of these items
  • Cleaning (only if you have a dedicated home office).

The actual cost method requires detailed calculations and records. For example, you will need to know and have records of the cost per unit of electricity and the average units used per hour.

You need to keep receipts, bills or invoices which show the supplier, amount of the expense, nature of the goods, date it was paid and the date of the document. You will also need evidence of your personal and work-related use of the items. You can do this using records over a four-week period representing your work use – for example, a diary or itemised bill.

Expenses you can’t claim

You can’t claim a deduction for:

  • Coffee, tea, milk and other general household items, even if your employer may provide these at work
  • Costs that relate to your children’s education, such as equipment you buy – for example, iPads and desks, subscriptions for online learning
  • Items your employer provides – for example, a laptop or a mobile phone
  • Expenses where your employer reimburses you for the cost.

If you would like more information on how these changes will affect you, Accelerated Prosperity is here to help. Contact us to set up an appointment to discuss.

Business Advice
Andrew Sampson Accountant Accelerated Prosperity
The Author
Andrew Sampson
Andrew has dedicated his career to advising private clients on their financial and tax affairs for over 20 years and takes pride in going the extra mile to see you and your business prosper.
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