Working from Home Deductions – March 2023 Changes
Working from Home Deductions - March 2023 Changes
Over the past few years, many industries have changed how and where work is undertaken, and the prevalence of team members working from home is likely to continue. As a result, the Australian Taxation Office (ATO) has reviewed the generous deductions previously available, where taxpayers are working from home, and has implemented changes to deductibility of these work related expenses from 1 July 2022.
This article discusses the deduction for operating, or home office ‘running’ expenses, and does not consider the broader topic of whether a home is a ‘place of business’, where additional ownership expenses may be claimed, and the resulting capital gains tax implications for the home.
Some elements of claiming working from home deductions are unchanged. The basic principles for claiming these expenses are:
- taxpayers are required to carry out at least some of their income producing activities from home. The amount of these activities must be substantive – occasionally checking emails, rosters etc. at home in unlikely to support a deduction claim;
- taxpayers have incurred additional running costs as a result of working from home – demonstrated by invoices and records of hours worked from home;
- taxpayers keep and retain the appropriate records to demonstrate their work/employment related usage of these expenses.
For the 2022/23 and future years, when claiming expenses that relate to working from home, taxpayers have two options:
- Revised Fixed rate method; or
- Actual expense method.
Where more than one person in the household is working from home during the year, each person may choose a different method to claim working from home deductions.
Fixed rate Method
The new fixed rate for working from home expenses, effective from 1 July 2022, is 67 cents per hour. There is no longer the requirement for an individual to have a dedicated home office area to be able to claim using the fixed rate method.
For the 8 months from 1 July 2022 – 28 February 2023, working from home expenses can be claimed on the fixed rate method of 67 cents per hour based on the estimated hours worked from home during this period. The record keeping requirements for this period could be based on diary records - for example, all hours working from home (based on a work diary) or at least a four week work diary recording hours these hours, as long as the four week period is representative of working from home activity.
From 1 March 2023 and for future years, there is a significant change to record keeping requirements to enable a claim for home office expenses under the fixed rate method. Taxpayers will need to keep a record of the total number of actual hours that you have been working from home – an estimate of hours worked will no longer be accepted. Examples of acceptable records may include a daily work diary, timesheets, rosters, records detailing times when accessing work computers etc.
Apart from the time record keeping, taxpayers will need to keep at least one invoice for the financial year for each type of expense (internet, phone, electricity etc) to demonstrate that these working from home accounts were paid by them. Where accounts are in the name of another person, payment evidence demonstrating the person making the claim paid the expense will also be required.
What is included in the new fixed rate?
Expense items included in the new fixed rate are:
- Electricity and gas;
- Computer consumables and stationery;
- Phone (mobile and home) and internet.
What can still be claimed separately?
- Depreciation on fixed assets, such as for office furniture and technology, costing more than $300;
- 100% depreciation on asset purchases costing $300 or less;
- Repairs and maintenance of fixed assets;
- For dedicated home offices, cleaning costs.
Note, receipts for these items are required to be kept for two years after the issue of your notice of assessment for the year of the claim, where the total of all work related expense claims exceeds $300 in that year. Receipts need to include the name of the supplier, date of purchase and preparation of the receipt, a description of the goods and the price paid.
Actual Expense Method
Under the actual expense method, your work related expenses are based on the actual costs incurred and your work use of those expense payments.
To claim under this method, taxpayers will need to keep all receipts that relate to their claims, the hours that they have worked from home and detailed records of the work use to support the amount of deductions included in their return (for examples, hours of work use compared with private use to claim depreciation of assets such as computers and laptops).
Any expense amounts reimbursed by an employer are unable to be claimed, unless the reimbursement is included in assessable income.
Expense verification
The two main principles in relation to successful deductions claims are:
- that the taxpayer has actually incurred the expense and has not been reimbursed; and
- there is a real connection between the expense incurred and the taxpayer’s income producing activities (both work and business related).
Receipts should be in the name of the person claiming the deduction, but where one expense is used by more than one person in the household, it may be reasonable to apportion the expense over the related users (eg. wife and husband). In some instances, credit card statements may be accepted to confirm payments.
Where expenses incurred should be apportioned, there must be a reasonable basis for the apportionment (such as where other users in the home share the same expense).
When using the actual expense method, a four week diary record demonstrating the work use of an expense should be the minimum record of usage kept for each year, on the basis that the work use related to this expense is constant – if no representative period exists, records should be kept for the full year. Note, where a 4 week period is applied to the whole year, periods of leave should be excluded from the calculation.
Work use may be determined by any number of factors, including:
- based on the ratio of use (for example, the number of work related calls compared to total calls received);
- time proportion (for example, the amount of time spent on a mobile phone for work related calls, texts, camera use, work related social media posting etc, compared with the private use time);
- combination of time and/or quantity (internet time and/or data use for work compared with private use).
The manner in which a taxpayer uses a device will determine the most appropriate measurement method.
Where work use of assets in minor and infrequent, taxpayers may be able to claim up to $50 per annum to cover all of these expenses by keeping basic usage records – as a guide, the ATO accepts 25c for landline calls, 75c for mobile calls and 10c for each text and time related data usage (PS LA 2001/6).
So, which rate should you choose?
We recommend keeping detailed records of the hours that you have worked from home each year, as well as all receipts associated with the payment of running costs included in the fixed rate method and the acquisition and maintenance of depreciable assets. Ideally, this receipt information will be presented to your accountant in an excel or similar format, where they total more than a few individual items.
Having kept all relevant information, the outcome for the two methods (revised fixed rate and actual expenses) of claiming working from home deductions can be compared to determine the most beneficial method for each financial year.
If you have any questions, please don’t hesitate to contact me at michelle@tellerygroup.com.
References
PCG 2023/1 - Claiming a deduction for additional running expenses incurred while working from home - ATO compliance approach
TR 93/30 Income tax: deductions for home office expenses
Media Release – Changes to Working from Home Deductions
