In the wake of lockdowns and a rise of working from home, the ATO have recently revised their approach to claiming work from home expenses in your tax return. From 1 March 2023, the ATO are requiring taxpayers to keep far more stringent records of the hours they are working, evidence of paying for expenses they claim, and a record of assets purchased to enable them to work from home. In this blog we break down what is involved for you.
What classes as “working from home”?
- Carrying out your employment duties from home in a way that replicates how you would be working in the office.
- You no longer need to have a dedicated home office space.
- Doing small, occasional tasks like checking emails or taking a phone call does not class as working from home.
There are two methods for claiming work from home expenses. What are they?
- Fixed Rate – this method allows you to claim $0.67 per hour you worked from home in that financial year. It aims to estimate the expenses you incurred because you worked from home, bypassing the need to calculate the exact costs you incurred. However, from 1 March 2023, you must keep a record of all the hours you worked from home for that financial year.
- Actual Rate – as it sounds, this method allows you to claim the actual amount of expenses you incurred while working from home. This method can be more complex, as it requires you to keep a record of all expenses incurred, and calculations of work/personal portions for each expense.
The method most suitable for you will depend upon your record keeping, and how easy or difficult it is to determine the split between work and personal use of expenses claimed.
What can I claim?
- Both methods are designed to compensate you for expenses like phone, internet, computer consumables, stationery, gas and electricity usage.
- You can only claim items essential to your work, meaning things like tea and coffee cannot be claimed.
- Assets like office furniture or technology that you have purchased to work from home can be claimed. If costing less than $300, they can be claimed as an outright deduction. Otherwise, you will be required to depreciate the asset and claim the cost as a tax deduction over several years.
How do I use the “fixed rate” method?
- From 1 March 2023 you must keep a real time record of the hours you worked from home, such as a timesheet, roster or diary. A paper or electronic diary/record should be completed every day.
- A ‘representative record’ of the hours you tend to work is only sufficient from 1 July 2022 to 28 February 2023 and will not satisfy the new requirements from 1 March 2023.
- Evidence that you have paid for the expenses you are claiming, such as a phone, internet, or electricity bill.
- A record of any equipment you bought to work from home including details of the supplier, cost and date acquired.
- Although $0.67 per hour is the maximum amount you can receive for expenses claimed, you can claim the decline in value (depreciation) of assets like office furniture and technology that enable you to work from home separately, up to the value of $300.00 per year.
- Businesses can also use the fixed rate method where they carry out some or all of their business from home.
How do I use the “actual cost” method?
- You need to keep detailed records of all your receipts and bills relating to expenses you claim. Like the fixed rate method, you can claim things like phone, internet, electricity and other assets essential to your ability to work.
- You need to be able to show your usual pattern of working from home. A 4-week representative diary is sufficient only for the actual cost method. Despite this it might be best to keep a day-to-day record of the hours work, in case at tax time you decide it would be more suitable to claim under the fixed rate method.
- You need to show a record of how you have calculated the split between work and personal use for expenses claimed.
- If you have purchased assets or equipment exceeding $300.00, you won’t be able to claim the full amount immediately. Instead, you can claim the work-related depreciation in value of these items over a number of years.
Which method is best for me?
- Your personal work-related circumstances will determine which method is best for you.
- If you use your mobile phone significantly for work, you may be able to claim a higher tax deduction using the actual cost method. This would require you to keep a 4-week diary to prove your work-related use of your phone, internet and so on. You must keep all your receipts relating to these expenses.
- If you dislike record keeping but can easily substantiate your time in the home office via timesheets, the fixed rate method may be best for your situation.
If you have any questions about the best method for you, the records you need to be keeping, or if you are eligible to claim work from home expenses, please contact our team.
