The Australian Taxation Office (ATO) has announced changes to the fixed rate method for claiming working from home deductions, effective from 1 July 2022. Assistant Commissioner Tim Loh highlighted that taxpayers can use either the “actual cost” or “fixed rate” method to claim deductions, with only the latter undergoing changes.
- Fixed rate increased: The cents per work hour for the fixed rate method has risen from 52 cents to 67 cents.
- Expenses covered: The revised fixed rate covers energy expenses, phone usage, internet, stationery, and computer consumables.
- Separate claims: Decline in value of assets (e.g., computers, office furniture), their repairs and maintenance, and cleaning costs for a dedicated home office must be claimed separately.
- No dedicated home office required: Taxpayers no longer need a dedicated home office to use the fixed rate method.
- Record-keeping: From 1 March 2023, taxpayers must keep a record of total hours worked from home for the entire income year, without estimates or a 4-week representative diary.
The Two Methods to claim working from home expenses
There are 2 available methods that are available to be used to claim working from home expenses. In summary, use the fixed rate method for a simpler approach with less record-keeping, and choose the actual cost method when claiming significant work-related expenses to maximize deductions.
Fixed Rate Method
The fixed rate method is generally suitable for taxpayers who prefer a simplified approach and want to avoid the complexity of calculating the work-related portion of their expenses. This method covers basic expenses like energy, phone usage, internet, stationery, and computer consumables at a rate of 67 cents per work hour.
Example: Sarah works from home for 20 hours a week. Under the fixed rate method, she can claim a deduction of 20 hours x 67 cents = $13.40 per week. Over a year, her total deduction would be $13.40 x 52 weeks = $696.80.
Actual Cost Method
The actual cost method is more suitable for taxpayers who have significant work-related expenses and want to claim the exact work-related portion of their costs. This method requires more detailed record-keeping and calculation of the work-related and private portion of the expenses.
Example: Tom works from home and has a dedicated home office. He spends $1,200 on electricity, $600 on internet, and $400 on phone bills for the entire year. He calculates that 60% of these expenses are work-related. Under the actual cost method, Tom can claim:
- Electricity: $1,200 x 60% = $720
- Internet: $600 x 60% = $360
- Phone: $400 x 60% = $240 Tom’s total deduction for the year would be $1,320.
Record Keeping Requirements
Transitional arrangements for record-keeping are in place for 2022-23. From 1 July 2022 to 28 February 2023, the ATO will accept a record representing the total number of hours worked from home. From 1 March 2023, taxpayers must record their total hours worked from home. General household items such as coffee and tea cannot be claimed.
The ATO now requires taxpayers to keep the following records for working from home deductions:
- Total number of hours worked from home for the entire income year. Starting from 1 March 2023, the ATO will no longer accept estimates or a 4-week representative diary for the fixed rate method. Records can be in any form, such as timesheets, rosters, logs of time spent accessing employer or business systems, or a diary for the full year.
- For each expense covered by the fixed rate per hour (e.g., phone and electricity), taxpayers must keep one bill for each of these expenses.
For those using the actual cost method, detailed records for all working from home expenses being claimed must be kept, including:
- All receipts, bills, and other similar documents to show taxpayers 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 4-week period to show the usual pattern of working at home.
- A record of how taxpayers have calculated the work-related and private portion of their expenses, such as a diary or similar document kept for a representative 4-week period to show the usual pattern of work-related use of a depreciating asset like a laptop.
Remember that if claiming actual working from home expenses, taxpayers cannot claim a deduction for expenses that have already been reimbursed by their employer.
Ensure that you only claim work-related expenses and keep records to support your claims, as the ATO may ask for evidence to substantiate your deductions.
To be eligible to use either the fixed rate or actual cost method for claiming working from home deductions, taxpayers must meet the following criteria:
- They must be working from home to fulfill their employment duties, not just carrying out minimal tasks like occasionally checking emails or taking calls.
- They must incur additional expenses as a result of working from home.
For the fixed rate method, there are no specific eligibility requirements other than meeting the general working from home criteria mentioned above. With the recent changes, taxpayers do not need a dedicated home office to use this method.
For the actual cost method, taxpayers must maintain detailed records of all work-related expenses and the work-related portion of those expenses. They need to have receipts, bills, or other similar documents, along with records of the number of hours worked from home and calculations for work-related and private portions of their expenses.
No Double Dipping
It is essential to note that taxpayers cannot claim a deduction for expenses that have already been reimbursed by their employer when using the actual cost method.
What Happened to the Shortcut Method?
The shortcut method, which was a temporary measure introduced by the ATO to simplify working from home deductions during the COVID-19 pandemic, ceased on 30 June 2021. From the 2021-2022 income year onwards, taxpayers are required to use either the fixed rate method or the actual cost method to claim working from home deductions.
If you would like more information about the working from home expenses reforms, then please get in contact with our office.
Further information is also available here.