The Australian Taxation Office (“ATO”) has released updated guidance on claiming working-from-home deductions. This is backdated, effective from 1 July, 2022.
These changes have been implemented purportedly in order to better reflect contemporary working-from-home arrangements.
From 1 July, 2022, taxpayers now have the choice between either applying the actual-cost method (percentage of floor space) or the revised fixed-rate method. The previous “shortcut method” is no longer available (this was originally introduced to provide temporary administrative relief for taxpayers during COVID restrictions).
The revised fixed-rate method allows taxpayers to claim a rate of 67 cents per hour (previously 52 cents).
However, while the rate has increased, there are notable changes to the costs that are included as well as record-keeping requirements.
As this has been introduced part-way through the 2023 financial year, the ATO has introduced transitional arrangements for the 2023 financial year.
Revised fixed-rate method
To claim a deduction using the revised fixed rate method, the following criteria must be satisfied:
The taxpayer must be working from home to fulfil their employment duties, and the duties must be substantive in nature (i.e., minimal tasks such as answering occasional calls and emails are not eligible for a deduction).
Additional running expenses must have been incurred;
The taxpayer must not be reimbursed for the costs incurred.
Where expenses are invoiced to one household member, but the cost is shared, each member that contributes to the payment will be taken to have incurred the cost.
Retain appropriate records (please refer below to record-keeping requirements).
Expenses included under the method (and some which are not)
This revised fixed-rate method includes the following expenses:
Internet and telephone usage
Electricity and gas
Stationery and computer consumables
As these expenses are included in the hourly rate, you cannot claim a separate deduction for them.
However, the revised method does not include:
Decline in value of home office furniture and furnishings (previously covered by the fixed-rate method)
Decline in value of depreciating office and computer equipment
Repairs or maintenance to the abovementioned
Occupancy costs (such as mortgage interest or rent)
Cleaning (previously covered by the fixed-rate method)
Accordingly, if new office assets are purchased during the year, or repairs are undertaken, please retain these records, as a separate deduction may be claimed.
Record-keeping requirements
A record of hours worked from home for the entire income year must be maintained (e.g., timesheets, rosters, computer system logs, diary, etc.). An average cannot be applied.
Invoices supporting running expenses. The taxpayer must retain at least one monthly or quarterly energy, telephone and internet invoice (if an invoice is not in the taxpayer’s name, the taxpayer must provide evidence that the expense is shared, e.g., bank statements or lease agreements).
Invoices for stationery and computer consumables.
Please note, as with all tax records, these need to be retained for 5 years from the date the tax return is lodged.
Transitional arrangements
As this new calculation method has been released mid-financial year, the ATO has provided for transitional arrangements which will apply for 2023 only.
Accordingly, for the 2023 financial year the taxpayer must have the following:
A representative record of the total number of hours worked from home during the period 1 July, 2022 to 28 February, 2023.
A record of the actual hours worked from 1 March, 2023 to 30 June, 2023 (in line with the record-keeping requirements section above).
Invoices supporting running expenses (electricity, ‘phone, internet, etc.)
If the taxpayer does not have evidence to substantiate the purchase of assets, a tax deduction may still be able to be claimed if other records which support the cost, date purchased, and the work-related use of the asset are available.
Actual-cost method
The actual cost method hasn’t changed. Under this method, the actual work-related portion of all running expenses may be claimed.
This method requires keeping detailed records of all the working-from-home expenses being claimed, including:
all receipts and invoices for running costs.
a record of the number of hours worked from home during the income year (either the actual hours or a diary kept for a representative 4-week period).
a record of how the work-related and private portion of their expenses has been calculated (for example, a diary kept for a representative 4-week period to show the pattern of work-related use of your telephone or depreciating asset).
If you would like to discuss these changes or the records required to be maintained, please do not hesitate to contact us at info@bpaccountants.com.au.