We wrote a blog a little while back about how to make a claim for using your home for employment work or your own business work here but...
The method by which taxpayers claim deductions for costs incurred when working from home has recently been updated by the Australian Taxation Office (ATO). The modifications now more accurately represent current work-from-home arrangements… but, it means we need to change some things. Welcome to the world of tax - just when you think you have it figured it out, they change it.
When calculating deductions for your 2022–2023 income tax returns (onwards), you may adopt the updated fixed rate approach starting on July 1, 2022.
So what are the revisions made by the ATO?
The cents per work hour has increased from 52 cents to 67 cents. Woohoo!
This means, if you are using the fixed rate method, you tell us (or your accountant) how many hours you worked from home and we apply the rate set by the ATO.
*changes each year
The increased fixed rate of 67 cents per work hour includes costs for internet, stationery, computer consumables, and energy (electricity and gas). You cannot use this method to claim any further deductions for any costs that are already covered by the rate.
For example, if you claim the $670 above, you can’t also claim $50 per month for use of your phone.
What is eligible for a separate claim?
Does the ATO still require a dedicated home office space to claim working from home expenses?
“No no no no way!” - Whitney Houston
To claim working from home expenditures, taxpayers do not need a separate home office space under the updated fixed rate system. Woohoo! So, if you work from home (doing more than just checking the occasional email or taking a call), and you don’t have a specific office (or studio) space, then that’s still ok.
The ATO will not accept estimates, a 4-week representative diary, or any other similar document under this approach starting on March 1, 2023. Taxpayers must now keep a record of all the hours they worked from home during the whole income year. We recommend keeping a log of hours for the full year.
As long as the information is recorded as it happens, records of home-based work hours can take any shape, including timesheets, rosters, logs of the time spent logging into employer or business systems, and annual diaries.
You also need to keep receipts for expenses. Any expense that taxpayers have incurred and that is covered by the fixed rate per hour must be documented. For example, if taxpayers use their phone and electricity when working from home, they must keep one bill for each of these expenses.
So is there a revision for the rules regarding Actual cost method?
The approach to actual costs hasn't altered. All operational expenses may be deducted from taxes in the actual percentage that relates to labor. Read more about this method here.
Regardless of the approach taken, an employee who spends more than $300 on tools and equipment for their jobs cannot instantly deduct the entire cost. The deduction must be claimed for each of these items over a number of years, together with the work portion (known as decline in value or depreciation). A sole trader business person may be able to though (under the small business write off rules - check out our ‘instant asset write off’ blog for more info).
To assist taxpayers in calculating the loss in value of assets and equipment bought, the ATO has online calculators available. The ATO app also includes the myDeductions function, which may be used to keep track of expenses.
You might also like our FREE Bills and Expenses PDF here.