Whilst working from home for the self-employed has been commonplace for years, the number of employees working from home has boomed over the last couple of years for a reason we’re all well aware of: covid. For many, this change will remain permanent – whether it’s for the full five days, or on a part time basis with flexible working arrangements now a mainstay of Australian employment.
Working from home means you’re personally incurring costs to earn your income – and that means you might be able to claim those costs as a tax deduction.
How you’ve set yourself up to work from home has a significant impact on what you can and can’t claim. Do you have a dedicated part of the house with a separate entrance that clients come and go through? Alternatively, have you set a room aside (like a study or bedroom), or do you just sit on the couch with the laptop perched on the coffee table? Everybody’s circumstances differ, and therefore so can their tax outcomes.
You don't 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. If you work from your lounge room while your partner and children watch television you aren’t incurring any additional costs for lighting, heating or cooling as a result of working in that room – so you can't claim a deduction for them.
The ATO requires evidence of a more-than-incidental use of an otherwise private area of the house in order to claim a deduction. If you’re simply checking emails for next week’s roster occasionally on the couch, you may be not entitled to any claim.
If your home is not a place of business – as is the case of most employees – then your claims are restricted to running expenses only. This may include a portion of your heating, lighting, telephone, electricity and internet bills and depreciation and repairs of equipment. Employees are generally not able to claim occupancy costs.
If you are working from your home and it’s used as a place of business (generally applies to the self employed and business owners), then further deductions for the relevant proportion of attributable occupancy expenses such as rent, interest, rates and insurance may be also claimable. But beware, if you are a homeowner and claim these costs, the normal capital gains exemption you are entitled to when you sell your home will be reduced, meaning you have to pay some tax on the increase in value of the home you lived (and worked) in. This means that you can’t claim a portion of these occupancy costs and maintain the capital gains exempt status of your home. Running costs however, such as heating and lighting, do not impact the capital gains tax status of your home.
If you work from home the costs you may be entitled to claim include:
Note that Taxation Ruling TR 93/30 “Income tax: deductions for home office expenses” continues to apply and should be read if you want to fully understand what can be claimed.
There are two ways you can calculate your claim – by calculating each individual expense (actual cost) or using a simplified (shortcut) method offered by the ATO, recently renamed the fixed cost method.
The ATO shortcut rates have changed over recent years:
$0.67 p/hr (new rate starting 2022/23)
$0.80 p/hr (special covid rate, not available after 2021/22)
$0.52 p/hr (long standing rate, not available after 2021/22)
Along with the new $0.67 rate acquiring the name of the “fixed rate” method, the ATO also announced significant changes to what you can and can’t claim as well as extra record keeping requirements.
The new fixed rate and associated rules are outlined in the ATO’s publication Draft Practical Compliance Guideline PCG 2022/D4.
The new fixed rate per hour (only) covers the following expenses:
You can still claim a separate deduction for:
Very important note – if you decide to use this fixed rate you won’t be eligible to claim a separate deduction for any expenses covered by this method. 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 hourly rate of 67c per hour ie. you can’t claim for any of your usage whilst at the office or on site.
This is where the biggest changes have occurred. The ATO announced additional (much stricter) record keeping and evidence requirements for those who wish to use this new fixed rate method.
To claim working from home expenses using the revised fixed rate method, you will need the following records:
The “actual cost” method means just that – you are claiming the actual costs you incurred, so you need to calculate them yourself.
To claim a tax deduction for actual costs, you need to maintain:
Furthermore, the ability to claim a considerable amount of expenses depends on whether the individual has kept appropriate records. For example:
In addition, you’ll need to keep all receipts, bills and other documents which substantiate the additional running expenses they incurred while working from home, and how the work use was determined.
If you have any questions about work from home tax deductions or would like us to assist with your return, please get in touch.
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