The Australian Taxation Office (ATO) has recently introduced a revised approach to claiming expenses for individuals who work from home. Starting from 1 July 2022, individuals can choose between a new ‘fixed rate’ method or the ‘actual cost’ method to determine their deductions. This update aims to accommodate the growing trend of remote work and provide individuals with more flexibility in claiming relevant expenses. However, it is essential to understand the guidelines and requirements set forth by the ATO to ensure accurate and eligible claims.
The New ‘Fixed Rate’ Method
Previously, there were two fixed rate methods available for claiming expenses incurred while working from home. The first was an 80 cents per hour rate introduced in response to the COVID-19 pandemic, intended to cover additional running expenses. The second rate was 52 cents per hour and applied to individuals who had a dedicated workspace at home but were not running a business.
To streamline the process, the ATO has combined these two rates into a single revised method accessible to all individuals working from home. Under this new method, a fixed rate of 67 cents per hour is applicable, covering various expenses such as energy (electricity and gas), phone usage (mobile and home), internet, stationery, and computer consumables. It’s important to note that the depreciation of electronic devices can still be claimed separately. Additionally, the cost of cleaning a dedicated home office can be claimed if applicable. If multiple individuals are working from the same household, each person can make a claim using the fixed rate method, provided they meet the basic eligibility conditions.
Proof of Working from Home
To utilise the fixed rate method, individuals must maintain accurate records of the hours worked from home. The ATO no longer accepts estimates or sample diaries over a four-week period. Instead, individuals must keep a record representative of the total number of hours worked from home during the period from 1 July 2022 to 28 February 2023. It is crucial to record all hours, including those outside standard office hours or on weekends, to maximise deductions.
Furthermore, individuals need to retain copies of documents that support each running cost covered by the fixed rate method, such as invoices, bills, or credit card statements. In cases where bills are in the name of one household member, but costs are shared, each contributing member can claim a portion of the expense. These records should be kept for a period of five years to provide evidence if required by the ATO. Electronic work-from-home diaries should be accessible over time, and individuals may consider generating a PDF summary of their calendar at the end of each financial year.
The ‘Actual’ Method
While the fixed rate method simplifies the claiming process, some individuals may find that the ‘actual’ method yields a more favourable outcome if their expenses are higher. Under this method, individuals can claim the actual additional expenses incurred while working from home, considering any personal use and use by other family members. It is essential to maintain accurate records of these expenses and demonstrate their direct relation to income-earning activities.
Expenses that can be claimed using the actual method include the decline in value of depreciating assets like home office furniture, phones, and computers, electricity and gas for heating, cooling, and lighting, home and mobile phone expenses, internet expenses, and stationery and computer consumables. However, personal expenses unrelated to work, such as coffee, tea, and toilet paper, cannot be claimed. Occupancy expenses like rent, mortgage interest, property insurance, land taxes, and rates are generally not claimable unless the home is classified as a place of business.
Claiming for Home-Based Businesses
For individuals running a business from their home, there are additional considerations. If the home is the principal place of business, and a specific area is exclusively designated for business activities, a portion of occupancy expenses, along with running costs, may be deductible. For example, a doctor who operates a surgery from home and reserves one-third of the home for this purpose could potentially claim deductions accordingly.
It’s important to note that the potential sale of the home in the future may incur Capital Gains Tax (CGT). While the main residence is typically exempt from CGT, the portion of the home set aside as a place of business may not qualify for the exemption during that period. However, eligible individuals may be able to utilise small business CGT concessions and the general CGT discount to reduce any resulting capital gain.
Conclusion – Working from Home
The ATO’s updated approach to claiming expenses for working from home provides individuals with flexibility in choosing between the fixed rate method and the actual cost method. By understanding the guidelines and keeping accurate records, individuals can maximise their eligible deductions. Whether working from home due to COVID-19 or embracing remote work as a long-term arrangement, it is crucial to stay informed and comply with the ATO’s requirements to ensure accurate and valid claims.
How Vogue Advisory Group Can Help You With the Updated Expense Claims for Working from Home
At Vogue Financial Group, we understand the complexities of navigating the updated regulations surrounding expense claims for working from home. Our team of experienced professionals is here to assist you in optimising your deductions and ensuring compliance with the Australian Taxation Office’s guidelines. Whether you need guidance on choosing the most beneficial method, maintaining accurate records, or understanding the eligibility criteria for claiming expenses, our experts are ready to provide personalised support. Contact Vogue Financial Group today to schedule a consultation and let us help you make the most of your work-from-home tax deductions.
