Employees who work from home can claim limited deductions against their personal tax for some expenses incurred at home. The ATO has just changed how you calculate and support those deductions. In short, from now on you must have evidence of your expenses and hours worked from home, even for the fixed rate method.
In general, to claim a working-from-home (WFH) deduction, you have to do real work at home to meet your employment requirements, incur additional expenses, and have records that show you incur those expenses.
From 1 July 2022, there are two ways you can claim a WFH deduction as an employee:
- Using actual costs (the actual additional costs you incur from WFH)
- Using a fixed rate method based on the hours you work at home.
The temporary Short-cut Method you may have used for the 2021-22 tax year is no longer available.
The Revised Fixed Rate Method
The ATO has revised the fixed rate method to increase the rate, and to increase the recordkeeping requirements. The main change is that you must keep records and evidence of your expenses even for the fixed rate method.
The revised fixed rate method for WFH deductions:
- has increased from 52 cents to 67 cents per hour worked from home
- does not need a dedicated home office space
- covers claims for:
- electricity and gas
- home phone, mobile and internet usage
- computer consumables
- stationery
- allows taxpayers to separately claim the work-related portion of the decline in value of depreciating assets – for example, home office furniture (desk, chair) and furnishings, phones and computers, laptops or similar devices. Specific rules apply to this, so be careful. If you don’t know, check with us.
What you have to do for WFH Deductions
If you plan to use the revised fixed rate method (hours worked at home) for your 2022–23 tax return (this tax year), there are transition rules you have to apply:
Deductions from 1 July 2022 to 28 February 2023
- Keep a record which is representative of the hours you worked from home. For example you may have a continuous representative 4-week diary which you could apply for the 8-month period.
Deductions from 1 March 2023 to 30 June 2023
- Keep a record of the total actual number of hours you worked from home (say, a timesheet or diary) for the entire 4-month period.
- Keep at least 1 record of a bill showing you paid for expenses that are covered by the fixed rate method (for example, a monthly phone bill or a quarterly electricity bill)
- Keep records for any equipment you bought to work from home, like technology or furniture (which provides details of the supplier, cost, date acquired and the nature of the asset).
In short, from now on you must have evidence of your expenses and hours worked from home, even for the fixed rate method.
If you are separately claiming a work-related portion of depreciation, keep a record showing the work-related use of the depreciating asset. For example – a representative four-week diary that show personal and income-producing use of the equipment.
Where you incur running expenses for both private and work purposes, you need to apportion (determine a fraction) your deduction. You can only claim the work-related portion as a deduction.
What If I’m a Business?
The revised fixed rate method can also be used by businesses that run some or all of their business from home to claim home-based business expenses. You can also use actual expenses and apportion them.
Actual Cost Method
If you are using the actual cost method to claim actual WFH expenses, you must:
- incur additional running expenses as a result of working from home
- keep records or other written evidence, which shows the amount you spend on:
- expenses
- depreciating assets you buy and use while working from home
- Keep records or other written evidence of work-related use for your expenses and depreciating assets.
Why can’t I claim my Mortgage repayments, rent or rates as WFH deduction?
Occupancy expenses include mortgage interest, rent, council and water rates, and house insurance. As an employee working from home, generally you can’t claim occupancy expenses unless:
- your employer doesn’t provide you with an alternative place to work from –there is no office or workplace to return to, and
- the area that you use to work is exclusively used for work purposes and isn’t easily usable for anything else.
If you think you can claim occupancy expenses, speak to us. By claiming occupancy-related expenses there could be Capital Gains Tax issues if sell your house later.
Tips and Traps
- Actual, not representative records: From 1 March 2023, the ATO will not accept an estimate of hours worked from home based on a record of a representative short period.
- Only the person who pays the bill can claim it: Where there are several people in one household working from home, only the person who actually paid the bills gets to claim, even when using the fixed rate method. All of you can’t claim part of the expense and leave nothing for private use.
- You can’t claim twice on mobile phones under the fixed rate: Mobile phones are included in the 67c per hour. If you choose the fixed rate method, you can’t make another separate claim for your mobile phone expenses. The deduction for mobile phone usage is limited to the hours you spend working from home. Using the fixed rate method may not be the best option for you but you will need to weigh up whether record keeping for the actual method is worthwhile.
- You can’t claim shared expenses: If other members of your household (who are not working from home) are in the same room and sharing things like the lights, cooling, and internet while you are working from home, you can’t claim WFH expenses. The ATO doesn’t consider them additional expenses incurred by you alone.
- Only the work-related portion of the annual depreciation: Where you have bought a depreciating asset costing more than $300, you can’t claim the whole cost, and you can’t always claim the whole amount of depreciation. You can only claim the work-related fraction of the annual depreciation.
Please contact us if you would like more information about working from home deductions.
