Keep in mind the following information is General Advice and is obviously not personalised for your unique needs, objectives or financial situation. Please get in touch with your advisor before taking any action on the below points so they can advise on the appropriateness of this for you.
Australians who continue to work from home after this month are being warned to keep accurate records as a popular tax deduction shortcut is coming to an end.
The Australian Taxation Office’s shortcut method for calculating work from home expenses, introduced in 2020 during the pandemic, is ending on June 30, 2022.
The 80 cent shortcut rate has been around for a couple of years now – it’s rarely the best method to calculate your working from home expenses in terms of the size of the deduction but it does have the great virtue of simplicity
It rolls every working from home deduction – heating, cleaning, depreciation, mobile phone use – into one simple cents per hour rate.
For the 2022-23 financial year, taxpayers will have to use either the fixed rate method or the actual cost method to claim work from home expenses.
The ATO estimates that 4.8 million taxpayers claimed around $4 billion in working from home expenses in their 2020-21 return.
Of those, around one million are estimated to have used the shortcut method.
The shortcut method, which can still be used for this year’s tax return, allows taxpayers to claim 80 cents for each hour they worked from home.
It covers all expenses including phone, internet, the decline in value of equipment and furniture, electricity and gas, and only requires the taxpayer to keep a record of the hours they worked from home such as a time sheet, roster or diary.
“You can use this method if you worked from home and incurred some additional running expenses as a result, and have a record of the number of hours you worked from home,” the ATO says.
By contrast, the fixed rate method and actual cost method are more complicated and require more detailed records.
Fixed rate method
Using the fixed rate method, taxpayers can claim 52 cents for each hour they worked from home. That rate includes the decline in value of home office furniture such as a desk, electricity and gas, and cleaning.
All you need to do to claim this is to keep a diary – note the time you start work each day, the time you finish work each day and any breaks.
You can then claim 52 cents per hour for each working hour. In addition – and this is what makes this rate different to the temporary 80 cent rate – you can also make separate claims for the work-related proportion of items such as your home internet, mobile phone costs and other expenses that directly relate to your work such as stationery and printer ink.
These additional deductions require detailed receipts or other written evidence.
To claim phone expenses, for example, the taxpayer must have phone accounts identifying work-related calls and private calls to work out the percentage over a typical four-week period.
And to claim internet expenses and asset depreciation, they must keep a diary showing their work-related internet use and the percentage of the year they use their depreciating assets exclusively for work.
“If you don’t have a representative four-week period of your hours worked from home or your work-related use of your phone, internet and depreciating assets because they vary throughout the income year, you will need to keep records for the entire income year,” the ATO says.
Actual cost method
The actual cost method, as the name suggests, allows the taxpayer to claim a deduction for the actual expenses they incur as a result of working from home.
Deductions for asset depreciation, cleaning expenses, electricity and gas, phone and internet and computer consumables are calculated individually, and require detailed evidence including receipts and diaries used to calculate the work-related percentage of each.
With the actual cost method, you’ll need to keep a diary of your work from home hours for a typical four-week period and you’ll also need to work out the amount of your home, by floor area, that you’re using as your work space, from this, you can then work out the work-related proportion of your household expenses and apply this percentage to the actual amount you spend on electricity, gas, water, phone and internet. You’ll also need to keep all the original bills to prove your claim.
For example, to claim cleaning expenses for an area set up as a home office, the taxpayer must add together their receipts and multiply the total by the floor area of the dedicated work area, divided by the whole floor area of the house.
They then reduce that amount by the percentage of private use by the taxpayer and the use of the home office by other household members.
The ATO notes that people can’t claim for additional running expenses if other members of the household who are not working from home are in the same room.
For example, “Lee works from her lounge room while her partner and three children watch television. Lee isn’t incurring any additional costs for lighting, heating or cooling as a result of working in that room, so she can’t claim a deduction for them.”