What has changed with work from home tax deductions?
When you work from home you want to make sure that you’re maximising the tax deduction you’re entitled to.
To work out your deduction for working from home expenses, you need to use one of these methods: (1) Fixed rate method, and (2) Actual cost method.
The fixed rate method allows you to claim a set number of cents per hour, for every hour that you work from home.
The actual cost method allows you to claim all of the allowable expenses.
If you have expenses that are used for both business use and personal use, you need to apportion your deduction. You only claim the work-related portion as a deduction, e.g. you can’t claim your entire internet bill if you use wifi to watch Netflix in the evenings.
The ATO has recently made changes to the fixed rate method, the most significant change is that if you are working from home and you don’t have a dedicated office you can now claim a deduction. The actual cost method has not changed.
Q. What has changed in the fixed rate method?
The changes to the fixed rate method are:
1. The cents per hour rate has increased from 52 cents to 67 cents.
2. The expenses covered are energy (electricity and gas), phone usage (mobile and home), internet, stationery, and computer consumables.
3. You don’t need to have a dedicated home office space to claim working from home expenses.
You can read the full media release here – ATO Media Release.
Q. When did the changes come into effect?
The revised fixed rate method can be used from 1 July 2022 onwards.
Q. What records do I need to keep?
You need to keep a record of the hours you worked from home for the entire financial year.
Download your free Work From Home Diary here.
The ATO has said that ‘From 1 July 2022 to 28 February 2023, we’ll accept a record which represents the total number of hours worked from home (for example, a 4-week diary).’
However, from 1 March 2023, the ATO won’t accept estimates, so you need to keep a record of your actual hours.
You also need to keep:
· For the fixed rate method - one bill for each of the acceptable expenses that have been incurred (see full list in the question above). This is to prove that you paid the bill - the size of the bill is irrelevant. As weird as that is!
· For the actual cost method - all receipts from your working from home expenses, including electricity and gas, telephone, mobile, internet, stationery, and computer consumables
· For both methods – a final dated and signed copy of your diary. This can either be an electronically signed and dated pdf or a physical copy.
Q. Do you need to record the time of day the work was done or only the hours each day?
You don’t need to specify start and finish times, only total hours.
Timesheets, rosters, a diary, or a time recording app (like Toggl) that you complete at the same time as you work will be sufficient.
Q. Can you still claim a percentage of your home office instead of using the 67 cents/hour method?
If you have a separate office, you can use either method.
To decide which method will give you the most tax deduction I recommend keeping a diary for 4 weeks and then using that as the basis for estimating the full year. This is something to discuss with your accountant.
It’s great that there are two methods available to us. It’s essential that you track your hours in order to claim.
Download your Work From Home Diary here.
Disclaimer: On this website and my social media accounts I provide information about taxation issues, legislation and business management for Australian business owners. This information is provided solely for your education and development as a business owner, with the intention of helping you to understand your business finances, cash flow, and taxation obligations and to assist you in making confident business decisions.
While I take all reasonable care to ensure that the information I provide is accurate, relevant and up to date, I make no guarantees in this regard and disclaim any legal liability for any inaccuracy, incompleteness or error. If you find something that seems problematic, it would be very helpful if you let me know!