WFH? ATO pivots to reflect contemporary working from home arrangements

Who is eligible to claim?

To be eligible to claim working from home expenses you must:

• be working from home to fulfil your usual employment duties and not just occasionally completing incidental tasks (such as sending emails or taking calls);
• incur additional expenses as a result of working from home; and
• keep records to illustrate these expenses.

Taxpayers who meet these criteria can calculate their deductions using either the actual or fixed cost method.

Actual cost method

This method allows taxpayers to claim additional expenses that are incurred as a result of working from home. Such items include furniture, technological devices, energy and cleaning expenses, phone usage, internet bills and computer consumables. Where expenses are incurred for both work and personal purposes (energy related expenses), the deduction must be apportioned to cover only the work related portion. For example, to apportion energy expenses, you need to calculate the cost per unit of power by the average units used per hour and multiply this by the total hours worked from home. This process can be complicated and time consuming.

Taxpayers are required to keep and maintain detailed records of the incurred expenses, costs of depreciating assets and the hours worked from home throughout the year. It is also a requirement under this method to have a dedicated office space in your home (for example, a spare room).

Fixed cost method

The fixed rate was originally introduced as a tax shortcut designed to simplify the claiming process for working from home deductions. This method allows taxpayers to claim working from home related expenses at a fixed rate of 52 cents per hour for each hour of work conducted from home.

The rate includes the additional expenses incurred for the decline in value of home office furniture, energy related expenses and cleaning your dedicated home office space. Expenses such as mobile phone and data usage, internet, stationery and the decline in depreciating assets other than home office furniture (for example a laptop), will need to be claimed separately under the actual cost method.

What is changing?

Revised fixed rate

While the actual cost method will remain unchanged, the rate applicable to the fixed cost method is being increased from 52 cents per work hour to 67 cents. The increased rate aims to better reflect contemporary working arrangements and capture expenses that are difficult to calculate such as energy expenses (electricity and gas), phone usage, internet, stationery, and computer consumables, some of which were previously excluded from this rate.

Taxpayers who use the fixed rate will not be entitled to claim these items as separate additional deductions. Whereas items that typically result in larger deductions such as electronic devices, office furniture and depreciating assets are not included in the fixed rate and can be claimed separately.

Home office and record keeping

The ATO has also removed the requirement to have a dedicated home office space in order to claim working from home expenses under the fixed cost method. However, you will be unable to claim cleaning expenses unless you have a dedicated home office.

Furthermore, record keeping requirements will be tightened. Previously, the ATO accepted records of either the actual numbers of hours worked from home or a representative four-week period that demonstrated a usual pattern of working from home. Under the new regime, taxpayers must keep a record of all hours worked from home for the entire income year (a representative period will no longer suffice). These records can be kept via timesheets, rosters or log times of accessing the employers systems. 

When will the changes commence?

The revisions apply from 1 July 2022 and can be used by taxpayers in their 2022-23 tax returns. A transitional arrangement will be in place from 1 July 2022 to 28 February 2023.

The transitional arrangements mean that if you are planning to use the fixed rate in your FY23 tax return, you will need to have:

• a record that is representative of the total number of hours worked from 1 July 2022 to 28 February 2023; and
• a record of the total number of actual hours worked from home from 1 March 2023 to 30 June 2023.

From 1 March 2023 an estimate of hours will no longer be accepted.  

More information from Maddocks

For more information, contact Maddocks on (03) 9288 0555 and ask to speak to a member of the Corporate and Private Clients team.

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