The ATO has released its final guidance about how taxpayers can claim deductions for additional running expenses incurred while working from home.
Previously, the ‘shortcut method’ was a popular and simple way to claim a deduction based on an hourly rate of 80 cents per hour, which was intended to provide administrative relief for the many people forced to work from home temporarily during COVID restrictions. However, this method is no longer available, and employees now have two options: the ‘fixed rate method’ or the ‘actual cost method’.
Both require employees to keep detailed records to claim the WFH deductions.
The Fixed Rate Method
The ‘fixed rate method’ allows employees to claim 67 cents per hour, previously 57 cents per hour, if they incur additional running expenses due to WFH.
A new benefit is that employees no longer need a dedicated home office to use the fixed rate method.
Taxpayers can use the revised fixed rate method (RFRM), claim deductions at a rate of 67 cents per hour, if they meet the following criteria:
- Working from home;
- Incurring deductible additional running expenses; and
- Keeping and retaining relevant records.
The revised fixed rate covers:
- Energy expenses (electricity and gas);
- Phone usage (mobile and home);
- Computer consumables (such as ink cartridges, USB cables, power adaptors, or batteries).
No additional deduction for any expenses covered by the rate can be claimed if this method is used.
However, the decline in value of assets used while WFH, such as computers and office furniture; repairs and maintenance of these assets; as well as the costs associated with cleaning, may all be claimed separately.
To use this method, employees must keep records of the total number of hours worked from home (such as a timesheet, roster or diary) and provide evidence that they paid for each expense incurred that is covered by the fixed rate method (for example, a phone or electricity bill).
Employees should also keep a record of any equipment they bought to work from home, like technology or furniture (which provides details of the supplier, cost, and date acquired).
The Actual Cost Method
Under the ‘actual cost method’, employees can claim a deduction for WFH expenses with a detailed 4-week diary for accurate calculations.
To claim a deduction, employees need to maintain a record of the number of hours worked from home (timesheet, roster) and a diary showing their usual pattern of working from home.
They also need to keep receipts, bills, and other documents that substantiate the expenses incurred and how the work use was determined.
The work-related use needs to be determined over a representative four-week period for phone and internet expenses. While for other costs like heating, cooling, and lighting, the cost is based on the total annual hours used for work-related purposes.
In order to claim a tax deduction for home office expenses, it is important that the expenses directly relate to earning assessable income and that appropriate records are maintained.
If employees are claiming their actual WFH expenses, they can’t claim a deduction for expenses that have already been reimbursed by their employer.
Transitional arrangements were in place for 2022-23, but only until March 2023.
No matter which method is used, any assets or equipment purchased for work over $300 can’t be claimed at the total amount immediately and must be depreciated based on the effective life and work-related usage. This is known as the decline in value or depreciation.