Working from Home, what do I need to know for 2023 and onward?

The Australian Taxation Office (ATO) has long accepted that some taxpayers do work from  home.  Since 2001 approved hourly rates have been available to assist in making “low risk” claims.

From 1 July 2022 the ATO has revised  the way you can claim deductions for the costs you incur when you work from home. From this date you can choose either to use a new ‘fixed rate’ method (67 cents per hour), or the ‘actual cost’ method depending on what works out best for your personal situation. Either way, you will need to gather and retain certain records to make a claim.

 In making a claim for working from home expenses there are 2 key issues:

• There must be a link between the costs you incurred and the way you earn your income. If you incur an expense but it doesn’t relate to your work, or only partially relates to your work, you cannot claim the full cost as a deduction.
• You need to incur costs associated with working from home. For example, if you are living with your parents and not picking up any of the expenses for running the home then you can’t claim deductions for working from home as you have not incurred the expenses, even if you are paying board (the ATO treats this as a private arrangement).

Still interested?  Lets take a look at the new details

The new ‘fixed rate’ method

In the last few years there were two fixed rate methods to choose between:

• 80 cents per hour rate for expenses incurred while working from home. This COVID-19 related short cut was intended to cover ALL additional running expenses incurred while working from home; or
• If you had a space dedicated to work but were not running a business from home, you could claim 52 cents for every hour you worked from home to cover the running expenses of your home. This rate allowed you to claim the depreciation of electronic devices separately.  Furniture and other assets were not permitted to be claimed either outright or as depreciation.

It has become obvious that working from home arrangements are here to stay for many workplaces,  many have felt the Hybrid model in particular ideal.  So, from the 2022-23 financial year onwards, the ATO has combined the two formerly available fixed rate methods to create one revised method.  This revised method is accessible by anyone working from home, regardless of whether they have a dedicated space or are just working at the kitchen table, so long as they incur additional expenses.

The new rate is 67 cents per hour and covers your energy expenses (electricity and gas), phone usage (mobile and home), internet, stationery, and computer consumables. You can separately claim the cost of the decline in value of assets such as equipment and computers, and in addition repairs, and maintenance for these assets. If there is more than one person working from the same home, each person can make a claim using the fixed rate method if they meet the basic eligibility conditions.

However, additional record keeping is required from 1 March 2023.

What proof do the ATO need that I am working from home?

To use the fixed rate method, you will need a record of all of the hours you worked from home. The ATO  will no longer accept estimates or a sample diary over a four week period, rather you will need to keep a diary applicable to each day.  For example, if you normally work from home on Fridays but one day you have an in-person meeting outside of your home, your diary should show that you did not work from home for at least a portion of that day.

Having said that, the ATO will allow taxpayers to keep a record which is representative of the total number of hours worked from home during the period from 1 July 2022 to 28 February 2023.

Claims are not limited to standard office hours. If you work from home outside standard office hours or over the weekend, then make sure you keep an accurate record of the hours you are working.

You also need to keep a copy of at least one document for each running cost you have incurred during the year which is covered by the fixed rate method. This could include invoices, bills or credit card statements.  For each piece of equipment you wish to claim depreciation on the invoice must also be kept. Where bills are in the name of one member of a household but the cost is shared, each member of the household who contributes to the payment of that expense will be taken to have incurred it. For example, a husband and wife, or flatmates where they jointly contribute to costs.

You need to keep these records for five years so that if the ATO come calling, you can prove your claim. If this proof is not available at the time, the deduction will be denied. Many of us use electronic diaries.  Please ensure you keep a PDF of that diary, clearly showing the dates and times of your work, at the end of each financial year.

The ‘actual’ method

Some people might find that the actual method produces a better result if their expenses are higher. As the name suggests, you can claim the actual additional expenses you incur when you work from home.  The expenses MUST be reduced for any personal use or use by other members of your household. Importantly you will need to ensure you have kept records of these expenses and the extent to which the expenses relate to your work.   Keep in mind these are running expenses only and each expenses must be separately quantified and appropriately apportioned.

Using this method, you can 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.
• Electricity and gas (energy expenses) for heating, cooling and lighting.
• Home and mobile phone, data and internet expenses.
• Stationery and computer consumables, such as printer ink and paper.
• Cleaning your dedicated home office.

Be careful with this method because the ATO are looking closely to ensure these expenses are directly related to how you earn your income.  This will require significant record keeping to establish an appropriate work %. For example, you can’t claim personal expenses such as coffee, tea and other household incidentals even if you do use these items when you are at work. Nor can you claim occupancy expenses such as rent, mortgage interest, property insurance, and land taxes and rates unless your home is a place of business. It is unusual for an employee’s home to be classified as a place of business.

 My business is run from my home, what can I claim?

Where your home is also your principal place of business and an area is set aside exclusively for business activities, you can potentially claim a deduction for an appropriate portion of occupancy expenses as well as running costs. An example would be an architect who runs their business from home.

The architect may have one-fifth of the home set aside as a place of business where they see clients and undertake drafting and research.

It is important to keep in mind that Capital Gains Tax (CGT) might be payable on the eventual sale of the home. While your main residence is normally exempt from CGT, the portion of the home set aside as a place of business will not generally qualify for the main residence exemption for the period it is used for this purpose.

Whichever method you think may be best for you they ALL require additional record keeping as from NOW.  We have available an Excel spreadsheet which may provide a good starting point.  If you would like a copy contact us now.