The record-keeping requirements and methods for calculating working-from-home deductions have changed for the 2022–23 income year onwards. You need to be aware of these changes to keep the appropriate records for your 2023 Tax Return.
As a rule of thumb, it’s important to make sure you have evidence to support your deduction claims.
- Records of all the hours you work at home
- Receipts for all depreciating assets or equipment you use when you work at home
- Records of your personal and work-related use of assets.
The ATO has recently released a finalised tax guidance (16 February) for claiming tax deductions for working from home below. They have confirmed the new revised fixed rate of 67 cents per hour but with stricter record-keeping requirements.
From 1 July 2022, the ATO has explained that taxpayers who are working from home can claim deductions based on their actual expenses (actual cost method), or they can adopt a revised fixed rate method that uses a rate of 67 cents per hour.
To use the revised fixed rate method, you must meet the following basic conditions:
- You must be working from home while carrying out your employment duties or carrying on your business on or after 1 July 2022;
- You must be incurring specific additional running expenses which are deductible under section 8-1 as a result of working from home; and
- You must keep and retain relevant records in respect of the time you spend working from home, and for the additional running expenses you are incurring.
The running expenses covered by this method are:
- Energy expenses (electricity and/or gas) for lighting, heating/cooling and electronic items used while working from home;
- Internet expenses;
- Mobile and/or home telephone expenses; and
- Stationery and computer consumables.
Separate claims can be made for depreciation of computers or office furniture, repairs, cleaning and maintenance. The threshold cost for depreciation of an asset remains at $300.
A key change is that you do not need to have a separate home office or dedicated work area set aside in your home in order to rely on the fixed rate method.
Also, if more than one individual is working from home at the same time, each individual will be able to apply the fixed rate method if they each meet the requirements listed above.
The revised fixed rate method can also be used by businesses that operate some or all of their business from home to claim home-based business expenses.
We strongly recommend you start to keep the records the ATO has listed in their guideline.
The records you need to keep
You need to keep the following records to prove your working from home tax deductions for the 2023 financial year:
- A record which is representative of the total number of hours you worked from home during the period from 1 July 2022 to 31 December 2022; and
- A record of the total number of actual hours you worked from home for the period 1 March 2023 to 30 June 2023.
For the 2024 and later financial years, the ATO expects you to keep a record for the entire income year of the number of hours they worked from home during that income year. An estimate for the entire income year or an estimate based on the number of hours worked from home during a particular period will not be accepted.
To use the revised fixed rate method and claim 67 cents per hour for working from home expenses in your upcoming 2023 Tax Return, you will need to start keeping a record of your actual hours working from home now.
A record of your hours for the income year can be in the form of:
- A diary or similar document kept contemporaneously.
You must also keep evidence for each of the additional running expenses that you incurred. The documents you need to keep in order to demonstrate that you have incurred additional running expenses must show what the expense is and that you incurred the expense.
For energy, mobile and/or home telephone and internet expenses, you must keep one monthly or quarterly bill. If the bill is not in your name, you will also have to keep additional evidence showing you incurred the expenses; for example, a joint credit card statement showing payment or a lease agreement showing you share the property, and therefore the expenses, with others.
For stationery and computer consumables, which are occasional expenses, you must keep one receipt for each item purchased.
One benefit is that you no longer need a dedicated home office to use the fixed rate method.
Expenses you can’t claim
You can’t claim a deduction for the following expenses if you’re an employee working at home. These include:
- Coffee, tea, milk and other general household items, even if your employer may provide these at work
- Costs that relate to your children’s education such as equipment you buy – for example, iPads and desks, subscriptions for online learning
- Items your employer provides – for example, a laptop or a phone
- Any items where your employer pays for or reimburses you for the expense.
Occupancy expenses are expenses you pay to own, rent or use your home. They include:
- Mortgage interest
- Council and water rates
- Land taxes
- House insurance premiums.
As an employee working from home, generally:
- You can’t claim occupancy expenses
- There will be no capital gains tax (CGT) implications for your home.
Talk to our KMT tax adviser about the best way to calculate the deductions and the record-keeping requirements.
This is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own circumstances and get professional advice from a qualified accountant at KMT Partners.