ATO Introduces New Rules for Working from Home Deductions

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The ATO has recently released a draft tax guidance (PCG 2022/D4) for claiming tax deductions for working from home.

From 1 July 2023 the taxpayer can only:

  • use the revised fixed rate method to calculate the deduction, or
  • claim actual expenses.

From 1 July 2023, the 80 cents per hour shortcut method is no longer available. If a taxpayer is unable to use the revised fixed-rate method, they will need to use their actual expenses to claim a deduction.

The Revised Fixed Rate Method:

The fixed rate method has undergone a significant overhaul, affecting how taxpayers claim their home office expenses. The key changes are as follows:

Increased Fixed Rate: The hourly rate has been raised from 52 cents to 67 cents for every hour worked from home. This adjustment aims to accommodate the rising costs of running a home office.

Inclusion of Expenses: Under the revised fixed rate method, several expenses that were previously claimed individually are now covered within the 67 cents per hour rate. These expenses include internet costs, mobile phone expenses, electricity and gas for heating, cooling, and lighting, as well as stationery and computer consumables.

Additional Deductions:

Despite the limitations of the fixed rate method, there are still some expenses you can claim separately:

  • Depreciation of Assets: You can claim the decline in value of assets used for work, such as office furniture and computers, if their initial cost exceeds $300.
  • Work-Related Purchases: Expenses up to $300, such as desk chairs and monitors, can still be claimed.
  • Cleaning and Repairs: The cost of cleaning your home office space and repairing office furniture are also eligible for separate claims.

Record-Keeping Requirements:

You need to keep the following records to prove your working from home tax deductions for the 2023 financial year:

  • A record which is representative of the total number of hours you worked from home during the period from 1 July 2022 to 28 February 2023; and
  • A record of the total number of actual hours you worked from home for the period 1 March 2023 to 30 June 2023.
  • evidence you paid for the expenses covered by the revised fixed rate method (for example, if you use your phone and electricity when you work from home, keep one bill for each of these expenses).
  • You will also need records for items you claim as a separate deduction.

For the 2023-24 tax year onwards, you must keep a record for the entire year, for all the hours you worked from home.

You must record these hours regularly, throughout the year, using one of the following methods:

  • timesheets or rosters, employer system logs or online business systems
  • time-tracking apps
  • a regularly updated diary, calendar, spreadsheet, or similar document

Alternative Method: Actual Cost Method

Actual Cost Method remains unchanged. This method allows you to claim the actual costs of working from home as individual expenses.

This includes electricity, home and mobile phone costs, internet expenses, stationery, office consumables, and equipment below $300, as well as the depreciation of furniture and equipment exceeding $300.

To use this method, you need: either a record showing

  • the number of actual hours you work from home during the entire income year – for example, a timesheet or spreadsheet.
  • a continuous 4-week period that represents your usual pattern of working at home – for example, a diary.

You must also keep records that show:

  • the additional running expenses you incurred while working from home, such as receipts, bills and other documents.
  • how you worked out the amount of your deduction.

Choosing the Best Method:

Our expert accountants at OneHQ Accounting will help you choose the best method for maximizing your tax return based on your individual circumstances. If you have any questions, require assistance, or would like to discuss any of the above changes, please contact our office so we can help you to maximise your tax deductions in your 2023 and future year Tax Returns.

Need the help of a professional accountant? Contact One HQ Accounting for more information. We help clients all over Australia.
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