Changes to WFH Tax Deduction Methods – What you need to know

Updated July 2023

The Australian Taxation Office has overhauled the way taxpayers can claim their work from home deductions. The changes came into effect in March 2023 and relate to how you must compile your claims for your 2023 and future income tax returns.

This article summarises the two methods you can now look to use in quantifying your work from home claim. To assist with capturing your data and tracking the time you work from home we have created a simple to use Work From Home Deduction Diary you may wish to consider using.

To work out if you are eligible to claim work from home deductions and the best way to go about it, please read through our article below, download our Work From Home Deduction Diary and contact us should you require further assistance.

Am I eligible to claim WFH Deductions in my Tax Return?

For many years, the ATO has provided various methods of claiming working from home office expenses for employees working from home.

To claim working from home, you must:

• be working from home to fulfill your employment duties, not just carrying out minimal tasks, such as occasionally checking emails or taking calls; and
• incur additional expenses as a result of working from home.

Up to and including the 2021-22 financial year, the 3 different methods of claiming working from home expenses were:

• Shortcut method (temporary measure introduced 1 March 2020)
• Fixed rate method
• Actual cost method

From 1 July 2022 onwards, there are now only two methods of claiming working from home expenses. The shortcut method has been removed completely and you must now claim your expenses under one of the following:

• Fixed rate method
• Actual cost method

The actual cost method remains unchanged, however, if you claim or intend to claim your expenses under the fixed rate method, there are a number of changes you need to be aware of. Not following these changes may see you unable to claim any working from home deductions in your 2023 tax return.

Revised Fixed Rate Method

From 1 July 2022 onwards, to use the fixed rate method, you must:

• Work from home while carrying out your employment duties or carrying on your business;
• Incur additional running expenses as a result of working from home;
• Keep records that show the work-related portion of expenses incurred; and
• Keep records of the number of hours spent working at home for the whole income year.

The fixed rate has increased to 67 cents per hour for each hour you work from home and will include the following expenses:

• Internet expenses;
• Energy expenses (electricity and gas) for heating/cooling, lighting and powering electronic devices;
• Mobile and/or home telephone expenses; and
• Stationery and computer consumables.

An important change to be aware of under this method is that you cannot claim an additional separate deduction for any of these exenses. For example, if you use your mobile phone when you are working from home and when you are working from somewhere other than your home, your total deduction for mobile phone expenses for the income year will be covered by the fixed rate.

You can add to the fixed rate deduction the decline in value of depreciating assets of any assets (eg. equipment and furniture) that you use working from home along with any other running expenses not listed above.

A welcomed change under this method is that you no longer need to have a dedicated office space in order to apply the fixed rate method. However, there will be strict record keeping rules you will need to maintain in order to make your claim.

“From 1 July 2022 to February 2023, we’ll accept a record which represents the total number of hours work from home (for example a four-week diary)”, ATO assistance commissioner Tim Loh has said. “From 1 March 2023 onwards, taxpayers will need to record the total number of hours they work from home.” Acceptable records will include a timesheet, roster, diary or similar document.

In addition to keeping a record of the hours you work from home, you will also need to keep records of additional running expenses you incur from working at home. Examples will include one quarterly electricity bill to support electricity costs and one quarterly telephone bill to support phone costs.

Actual Cost Method

The actual cost method remains unchanged. This method allows you to claim the exact amount of costs you incur to work from home.

To use the actual cost method to claim actual expenses, you must:

• Incur additional running expenses as a result of working from home; and
• Keep records, for example, receipts or other written evidence, which show the amount:
  • you spend on expenses;
  • you spend on depreciating assets you buy and use while working from home; and
  • of work-related use for your expenses and depreciating assets.

You will not incur additional running expenses if other members of your household (who are not working from home) are in the same room as you while you are working from home.

Using the actual costs method, you work out your deduction by calculating the actual expenses you incur to produce your income when working from home. This may include the following expenses:

• Decline in value of depreciating assets – such as home office furniture (desk, chair) and furnishings, phones and computers, laptops or similar devices;
• Cleaning expenses, if you use a dedicated area for working;
• Heating, cooling and lighting – electricity and gas;
• Phone, data and internet; and
• Computer consumables and stationery – such as printer ink.

So what should you do now?

With the removal of the short cut method and revised approach you must now follow to apply the fixed rate method, now is an opportune time to reassess how you go about your work from home claim.

Do you have a dedicated work space and incur expenditure working from home? If so, the actual method may be a better method for you to apply.

If you don’t have a dedicated work space and your costs to work from home are fairly limited then a move from the short cut method to the fixed rate method maybe the way to go.

In either case, working out now what records you need to keep will support your ability to make a work from home claim this tax time.

How we can help you

Our team is here to support you with all areas of claiming home office expenses.

If you have any questions regarding claiming home office expenses, please contact our Personal Income Tax Return Specialist Janine Roberts on 03 5244 6840.

This article was written by Director Kylie McEwan.

Disclaimer: The information provided in this article is factual in nature and objectively ascertainable and, therefore, does not constitute financial product advice. Importantly, the factual information that has been supplied does not take into account your personal circumstances, objectives or goals.