Since the pandemic hit, working from home (WFH) and hybrid work has become the norm for many of us. During COVID, the Australian Taxation Office (ATO) blessed us with an increase in the home office deduction from 52c to 80c per hour on WFH expenses. But apparently, all good things must come to an end and we’re now set at 67c and a new (and seemingly, not so easy) method. We're here to break it down for you, so put your accounting caps on and let’s talk tax.
The ATO says they’ve launched a campaign to let people know about the changes. Blink and you’ll miss it, because claiming working from home tax deductions just became a bit of a burden, and no one (except accountants of course) seems to have noticed.
As of March 1 2023, it’s not enough to keep a 4 week diary and use it as an estimate of yearly hours worked from home. You’ll need to keep some pretty detailed records to use the new revised fixed-rate method .
The New ATO Method Replacing the WFH Shortcut Method
From 1 July 2022, the revised fixed-rate method of 67 cents per hour applies, replacing the old fixed-rate method of 52 cents per hour and the shortcut method of 80 cents per hour.
Like many Australians who WFH, we’ll miss the convenience of the shortcut method, which only required keeping a four week diary. Under the new method, indicative estimates won’t cut it. With record keeping requirements beefed up, you’ll have the burden of tracking every hour and every expense, which makes it less attractive to suck up the lower rate of 67 cents per hour. Maybe it’s time to familiarise yourself with the actual cost method again?
Important Points to Note With the Revised Fixed Rate Method
- The increased revised fixed-rate method includes internet, mobile, home phone, stationary and computer consumables, plus energy expenses related to WFH.
- You won't be able to claim additional separate deductions for anything covered under the fixed-rate method.
- You can still calculate separate deductions for depreciation of assets used when WFH, like computers, stand-up desks or your fancy ergonomic chair.
Why the WFH Tax Changes Aren’t Great for Taxpayers
Firstly, no one wants the burden of having to keep detailed records of when they wfh and what costs they incur as a result.
The big risk however is that if the ATO isn’t satisfied that your records meet the requirements, you could end up with no deduction at all. This is because if you don’t have enough records for the fixed rate method, you won't have enough records to do the actual method.
We advise that taxpayers maintain records of actual use even if they don't use the actual use method. Because if a claim for the revised fixed rate method comes into question - the actual method will be the only fall back.
Record Keeping Requirements for Work From Home Expenses
Keeping track of expenses and records can be a daunting task, but it's now essential if you want to claim WFH expense deductions. From March 2023, you must keep a record of the actual number of hours worked from home, and you can't use estimates or four-week diaries during this period.
Another important note. You can't rely on the revised fixed-rate method if you don't meet the record-keeping requirements or if the ATO isn't satisfied with your records. If you lodge an objection about your work-from-home expenses, you can't use this method and can only claim deductions based on actual expenses incurred. So, it's essential to keep accurate records of your expenses to ensure you can claim the maximum tax deductions possible.
How to Keep Records for Work From Home Tax Deductions
We recommend creating a timesheet to record the exact number of hours you worked from home. For example, the records would have to show: 21 Feb 23 - worked from home 7.5 hours, 24 Feb 23 - worked from home 3 hours etc.
Here are a few quick tips for keeping track of additional costs you incur from wfh:
- Keep record of your cleaning expenses for your home office: remember to track any private use by you or other household members.
- Keep record of your utilities: Use the cost per unit of power from your utility bill, find the average power consumption per hour for each appliance or light, and multiply it by the total annual hours used for work-related purposes.
- Keep record of your phone, data, and internet.
- Keep your itemised phone bill, keep track of your work-related calls and compare these to your total calls to determine your work-related percentage.
Actual Cost or Revised Fixed Rate Method?
When it comes to claiming work-from-home (WFH) deductions, as accountants we consider what's best for our clients. Sure, the revised fixed-rate method is capped at 67 cents per hour, but is it really the way to go? We think it's worth taking a closer look at the actual cost method, even if it means keeping more records and crunching more numbers. The potential savings could make a big difference.
Let's be real though, neither option is as attractive as the old wfh shortcut method, but if you’re up for the challenge give them a go. Or, you know, get in touch with a skilled accountant .
