Working from Home
A New Approach
WORKING FROM HOME – A NEW APPROACH
The Australian taxation office is making changes to the methods available for calculating work-from-home deductions. From the 1st of July 2022, taxpayers can continue to claim their actual expenses, or alternatively, they can use the revised fixed rate method.
Revised fixed-rate method.
The revised fixed-rate method apportions the following additional running expenses you incur on a fair and reasonable basis by using a fixed-rate of 67c per hour for each hour you work from home during the income year:
- energy expenses (electricity and or gas) heating/cooling and electronic items used while working from home
- internet expenses
- mobile and/or home telephone expenses, and
- stationery and computer consumables.
You do not need to have a separate home office or dedicated work area set aside in your home in order to use the 67-cent fixed rate.
To use the 67-cent fixed rate the taxpayer must meet the following criteria:
First criterion – working from home.
To satisfy the criterion you must be working from home while carrying out your employment duties or while carrying on your business on or after 1 July 2022. The work has to be substantive and directly related to your income-producing activities. As such minimal tasks such as occasionally checking emails or taking telephone calls while at home will not qualify as working from home.
Second criterion – incurring deductible additional running expenses.
To satisfy this criterion, you must incur additional running expenses such as electricity and gas, internet phone and stationery however you do not have to incur every single expense.
Third criterion – keeping and retaining relevant records.
To satisfy this criterion you must keep:
- records showing the total number of hours you worked from home during the income year.
- one document such as an invoice, bill or credit card statement for each of the additional running expenses which you have incurred during the income year.
For the 2023-24 and later income years you must keep a record for the entire income year of the number of hours you worked from home during that income year. An estimate for the entire income year or an estimate based on the number of hours you work from home during a particular period and applied to the rest of the income year will not be accepted. A record of your hours for the income year can be in the form of:
- time sheets
- rosters
- a diary or similar document kept contemporaneously.
Actual Costs Method
If the taxpayer wishes to use the actual costs method, they must have a dedicated office in their home.
You can claim a tax deduction for the work-related proportions of household cost such as:
- Heating, cooling and lighting bills
- Costs of cleaning your home working area (including cleaning products or payment for a domestic cleaner if required)
- Depreciation of home office furniture and fittings
- Depreciation of office equipment and computers
- Costs of repairing home office equipment, furniture and furnishings
- Small capital items such as furniture and computer equipment costing less than $300 can be written off in full immediately (they don’t need to be depreciated)
- Computer consumables (like printer ink) and stationery
- Phone (mobile and/or land line) and internet expenses
- A diary (or other substantiation, such as timesheets) is needed to record working from home hours (for a typical 4-week period).
- Taxpayers also need to work out the amount of the home (by floor area) that they’re using as their work space. From this, they can then work out the work-related proportion of their household expenses and apply this percentage to the actual amount spent on electricity, gas, phone and internet, etc. All the original bills to prove the claim also need to be kept.
- In addition, taxpayers must be able to demonstrate that the split between work and private usage is reasonable, e.g. for utility bills and cleaning expenses, you must demonstrate that the use of the work-related proportion (based on the floor area of the home office as a proportion of the total floor area of the property) is reasonable.
ATO Guidelines
Practical compliance guidelines
PCG 2022/D4
Claiming a deduction for additional running expenses incurred while working from home – ATO compliance approach.
Link: https://www.ato.gov.au/law/view/document?DocID=DPC/PCG2022D4/NAT/ATO/00001&PiT=99991231235958
If you would like to discuss what the new rules might mean for you and your business, please get in touch with your accountant at Wilson Colman.