The Australian Tax Office has announced changes to the current working from home deduction rules and rates, which were set during the COVID-19 pandemic. The rules have shifted from the previous tax year (2021-22) with the changes reflecting the increase in people working from home.
The ATO states that “The changes better reflect contemporary working from home arrangements.”
So, if you’re a business owner with staff working from home, or operate a small business yourself from home, make note of these changes which will come into effect for the 2022-23 financial year. Let’s unpack them now.
As it stands, there are three methods for claiming deductions on working from home expenses:
- Actual cost
- Fixed rate
- Floor area (for sole traders and partnerships)
Only the ‘fixed rate’ method is changing.
You can still use the actual cost method as per the previous tax year, or floor area if you’re a sole trader or partnership.
Let’s go into more detail…
Revised fixed rate rules
For employees working full time or part time from home, as well as small businesses (sole trader and partnerships), there a few key things to acknowledge when claiming the revised fixed rate working from home expenses in FY22-23:
- The fixed rate per hour has increased from 52 cents to 67 cents.
- You cannot deduct energy, internet, or phone usage separately. This is included if you choose the fixed rate option.
- You can’t deduct any other additional expenses that are included in the fixed rate option.
- You no longer need a separate home office to claim the fixed rate.
- You can deduct up to $300 of additional expenses immediately if they are not included in the fixed rate (such as home office furniture and equipment).
- Any additional expenses over $300 are calculated as depreciating assets.
ATO Assistant Commissioner Tim Loh, says this will be beneficial as,
“Items that are difficult and tedious for everyday Aussies to calculate actual work-use, like phone, internet and electricity expenses, are included in the revised rate. Assets and equipment that typically give taxpayers a bigger deduction, such as technological items and office furniture, are not included in the revised rate and need to be claimed separately.”
Which working from home expenses are included in the new fixed rate?
The fixed rate encompasses a variety of WFH expenses that you can’t claim separately:
- energy – gas and electricity
- phone usage
- internet usage
- computer consumables – paper and ink etc.
What about sole traders and partnerships who use their home to run their business?
On top of your regular home office deductions, such as ‘occupancy expenses’ and depreciation, this revised fixed rate method will also affect you, but only if you choose to use it.
You can still use the other operating cost options such as ‘floor area’ or ‘actual cost’.
Record keeping becomes stricter effective 1 March 2023
As always when claiming deductions, scrupulous record keeping is a necessity.
From 1 March 2023, you’ll need to be keeping accurate and ongoing records of working from home hours.
In the previous tax year, you could present a 4-week diary which exemplified your WFH schedule and hours worked. This will no longer be acceptable.
While there does seem to be some degree of flexibility for a short grace period in this circumstance—the deadline for transitional arrangements looms!
Mr Loh has stated that transitional arrangements are in place for those who’ve not kept records so far this income year:
“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). From 1 March 2023 onwards, taxpayers will need to record the total number of hours they work from home.”
New record keeping requirements in a nutshell
- You’ll need to keep a diary, log, spreadsheet, or similar record of all hours worked from home for the entire income year, effective from March 1, 2023.
- You can no longer use a 4-week representative diary.
- You must retain records for each expense covered by the fixed rate (a phone and internet bill for example).
Which will be better for you? Fixed rate or actual cost?
While the fixed rate is undoubtedly simpler, it may not be your best option. You may receive more in deductions (and cash in your pocket) by properly calculating your WFH ‘actual costs’. However, opting to claim actual costs could be a more involved and time-consuming affair (and you may not receive more after all.)
It’s advisable to consult a tax agent or accountant when filing your income taxes to receive personalised advice on which method is better for you.
To be prepared for any eventuality, it’s wise to keep accurate records and receipts, regardless of the eventual method you choose.
For more information, visit:
- ATO media release “Changes to working from home deductions”
- ATO income and deductions for home-based businesses website
*Remember, always consult with your accountant or bookkeeper to be sure of all your responsibilities as this article doesn’t constitute as professional advice.