After many months of speculation, on 16 February 2023, the ATO announced considerable changes to how you claim home office expenses when you work from home.
What’s new for home office expenses this year?
The fixed rate method got an overhaul
The fixed rate method has always been the most popular way of claiming working from home expenses. The way it used to work was simple; you claimed an hourly rate of 52 cents, then added regular expenses like mobile and internet costs on top. Unfortunately, the ATO’s changes – likely due to the success of the temporary shortcut method – could see many Australian tax payers out of pocket for the increasing costs of running a home office.
What are the changes to the fixed rate method ?
- The fixed rate amount has increased from 52 cents per hour to 67 cents for each hour you work from home.
- You no longer need a designated working area or home office to use this claim method.
On the surface that looks like a win for the many thousands of us who work from home, but when you look a little closer, there are some downsides.
The increased fixed rate of 67 cents per hour now INCLUDES some expenses you used to claim separately
You can no longer claim the following items individually if you in addition to the 67 cents per hour:
- Internet expenses
- Mobile phone expenses
- Electricity and gas used for heating, cooling and lighting
- Stationery and computer consumables (printer ink, paper etc.)
Can I claim any other expenses, if I use the new fixed rate method?
Though most of commonly claimed items are off the table under the revised fixed rate method, there are still a few extra deductions you can still claim:
- The depreciation of assets that cost more than $300 such as office furniture and computers.
- Expenses for work-related purchases up to $300, such as desk chairs and monitors.
- The cost of cleaning your home office and repairing office furniture.
Who can claim home office expenses, using the new fixed rate method?
To be eligible to use the revised fixed rate method for claiming your home office expenses you must be:
- ‘carrying out your employment duties’ at home
- ‘incurring additional running expenses’ (using power, internet, phone etc.) by working from home
- keeping records, relevant to the hours and days you are working from home
When did the new fixed rate rules start?
The fixed rate changes started on 1 July 2022.
That means that the changes affect how you claim your home office expenses from the 2022-23 tax year onwards. So, keep reading, there are some very important things you need to know to claim your work from home costs correctly.
What do I need to do to claim my home office expenses
There are now stricter record keeping requirements to claim home office expenses. If you wish to claim for the 2022-23 financial year onwards, you will need to start keeping records straight away.
What working from home records do I need to keep?
The ATO states you must keep a record that’s representative of the total number of hours you worked from home between 1 July 2022 and 28 February 2023.
You must keep a record of the total number of actual hours you worked from home from 1 March 2023 onwards. The ATO will not accept estimates.
- For the 2023-24 tax year onwards, you must keep a record for the entire year, for ALL the hours you worked from home.
- You must record these hours regularly, throughout the year, using one of the following methods:
- timesheets or rosters, employer system logs or online business systems
- time-tracking apps
- a regularly updated diary, calendar, spreadsheet or similar document
Records for home office running expenses
You must also keep a record of your home office running expenses.
The records the ATO require include:
- For electricity, gas, home phone, mobile and internet expenses, you must keep one bill (monthly or quarterly).
- If bills are not in your name, you’ll need to provide evidence of the expense, such as a joint credit card statement or joint property lease agreement, to prove that you share these expenses with someone else.
- For expenses, such as stationery, paper or printing ink, keep the receipt for each item you purchase.
Will this affect my tax refund?
Just like the temporary ‘Shortcut Method’ the ATO introduced for people working from home due to Covid, the new fixed rate is definitely going to see a lot of people out of pocket.
The revised fixed rate, of just 67 cents per hour, is also 13 cents an hour LESS than the scrapped shortcut method, which proved to be far from adequate for compensating the genuine costs that most people who work from home have to meet.
Is there another way to claim my work from home expenses?
The simple answer is Yes! The Actual Cost method has always been looked upon as the ‘tricky’ way to claim home office expenses, due to the amount of record keeping required. Now it’s looking far more appealing.
Remaining unchanged, for now, the Actual Cost method is worth considering. Using this method, you (or your tax agent) calculate the hours you work at home and the actual additional expenses you pay. You keep records of ALL your running expenses, of course, but if you get all the dollars you’re owed back in your pocket, it’s definitely worth considering.
How does the Actual Cost method work?
As the name suggests, you claim the actual costs of working from home as individual expenses. These include electricity, home and mobile phone costs, internet, stationery, office consumables and equipment under $300, as well as the depreciation of furniture and equipment in excess of $300.
To use this method you need:
- a 4 week diary tracking your usual pattern of working from home, or
- a 12-month record outlining the total number of hours you worked from home throughout the year.
What’s the best way to claim?
Here’s where these work from home changes get a little simpler, if you’re an Etax Local client. Our accountants will calculate which method, out of fixed rate and actual cost, will give you the biggest refund. They will then apply that method to your tax return.
The most important thing you need to remember is to keep good records. Without them, you won’t be able to claim home office expenses at all.
If you have any questions about your home office expenses, or anything else to do with your tax return, don’t hesitate to get in touch. Out accountants are always happy to help.