Working From Home and Tax

The Australian Taxation Office (ATO) has revised how it handles home-based employment expenditure claims.

The process for claiming deductions for the expenses you spend when working from home has been “refreshed” by the ATO. Depending on what works best for your situation, you can opt to employ either the new “fixed rate” technique starting on 1 July 2022 (67 cents per hour) or the “real cost” method. In either case, you’ll need to gather and save a few records in order to file a claim.

There must be a connection between the expenses you incurred and the source of your income in order to qualify for any deduction. You cannot deduct the entire cost of an expense if it has no connection to your job or only has a tenuous connection.

The second significant problem is that working from home comes at a cost. For instance, even if you are paying board, you cannot claim deductions for working from home if you are living with your parents and not shouldering any of the costs of maintaining the property (the ATO treats this as a private arrangement).

Looking at this in more detail:

The updated “fixed rate” approach

Historically, there were two fixed rate options available for the tax year 2021–2022:

• An 80 cents per hour charge that covers all costs incurred when working from home (which was available from 1 March 2020). The purpose of this COVID-19-related rate was to pay for all additional operating costs encountered when working from home; or

• You could deduct 52 cents for each hour you worked from home to pay for the upkeep of your house if you had a space designated for work but weren’t operating a business from there. Some expenses, including the depreciation of electronic equipment, which can be claimed separately, are not covered by this rate.

Even if COVID rules have loosened, it is obvious that working from home solutions are here to stay for many workplaces. The ATO has therefore integrated these two fixed rate techniques starting with the 2022–2023 financial year to produce a single revised approach that is usable by anyone working from home, whether they have a designated workspace or are simply working at the kitchen table.

Your energy costs (electricity and gas), phone usage (home and mobile), internet, stationery, and computer consumables are all included in the new rate of 67 cents per hour. If you have a dedicated home office, you can also claim the expense of keeping the office clean as well as the cost of repairs and maintenance for assets like computers that have lost value.

If more than one person works from the same residence, each employee who satisfies the basic eligibility requirements may submit a claim utilising the fixed rate approach.

What evidence is required to give to the ATO prove that I work from home?

You will need a record of all the hours you worked from home in order to use the fixed rate technique. The ATO has issued a warning that it will no longer accept estimates or a sample diary for a period of four weeks. Your diary should reflect that you did not work from home for at least a portion of that day, for instance, if you typically work from home on Mondays but had an in-person meeting one day.

Despite this, the ATO will permit taxpayers to maintain a record that accurately reflects the total number of hours they spent working from home between July 1, 2022, and February 28, 2023.

Nothing in the ATO guidance suggests that claims are only valid during regular business hours. That is, if you work from home after regular business hours or on the weekend, be sure to accurately track your time in order to maximise your tax deductions.

Also, you must maintain a copy of at least one document for each operating expense that was paid for using the fixed rate approach and that you incurred throughout the year. These can contain bills, credit card statements, or invoices. Each household member who contributes to the payment of an expense that is listed on a bill in the name of one person but the cost is split will be deemed to have incurred it. As an illustration, consider a husband and wife or roommates who share expenses.

You must preserve these records for five years so that you can support your claim if the ATO contacts you. The deduction will be rejected if this documentation is not readily available at the time. Make sure you can access your electronic work-from-home diary in the future if there is one (such as producing a PDF summary of your calendar at the end of each financial year clearly showing the dates and times of your work).

The ‘actual’ method

If their costs are higher, some people might discover that the “real approach” yields a superior result. You can deduct the actual additional costs you incur when working from home, as the name implies (and reduce the claim by any personal use and use by other family members). You must, however, be sure that you have documented both these costs and the degree to which they are related to your line of business.

Using this method, you can claim the work-related portion of:

• The decrease in value of items that depreciate over time, such as laptops, computers, phones, and office furniture (desk, chair), for instance.

• Energy costs for heating, cooling, and lighting, such as electricity and gas.

• Costs associated with home, mobile, and internet usage.

• Office supplies and computer consumables like paper and printer ink.

• Keeping your home office organised.

Use caution when using this strategy because the ATO will be checking to make sure that these costs are directly tied to your source of income. For instance, even if you use toilet paper, coffee, or tea at work, you cannot claim these costs as personal expenses. Also, unless your house is a place of business, you cannot deduct occupation expenses like rent, mortgage interest, property insurance, or land taxes and rates. It is uncommon to classify a worker’s house as a place of business.

What can I claim if I run a business from home?

You may be able to deduct a reasonable amount of your operating costs and occupancy costs if your house serves as both your primary place of business and an area designated solely for business operations. A doctor that operates their practise from their house would be an example.

One-third of the house may be designated by the doctor as their place of business, where they would see patients.

It is crucial to keep in mind that Capital Gains Tax (CGT) may be due when the house is eventually sold. While the portion of your home designated as your place of business will typically not qualify for the main residence exemption for the time it is used for this purpose, if you are eligible, the small business CGT concessions and general CGT discount may reduce any resulting capital gain. Your main residence is typically exempt from CGT.

If you would like to learn more about working from home and the tax implications of this decision, get in touch with MB Accounting & Business Services today.