One of the significant changes introduced by the ATO is the discontinuation of the 80 cents per hour pandemic shortcut method, which was available since 1 March 2020. Commencing 1 July 2022, taxpayers can claim a deduction for their actual expenses or opt to use the revised fixed-rate method of 67 cents per hour for each hour worked from home during the tax year. The revised fixed-rate method covers expenses such as electricity, gas, phone usage, internet, stationery, and computer consumables. ATO has also required more record-keeping documents to prove your WFH hours.

What you need to know

The ATO has advised taxpayers to keep accurate records of their hours worked from home during the income year and invoices or bills in the name of the homeowner or service recipient as evidence of additional running expenses incurred. It is imperative to note that to claim WFH deductions, taxpayers must work from home to fulfil their employment duties, and not just carry out minimal tasks such as checking emails or taking calls.

It is worth noting that assets and equipment such as a computer or similar electronic device, desk, and office chair that often provide taxpayers with more substantial deductions are not included when using the revised fixed-rate method and need to be claimed separately.

PCG 2023/1 relaxes the ATO’s approach towards home offices, and taxpayers are no longer required to have a separate home office or a dedicated work area set aside in their homes to claim WFH deductions. However, if multiple individuals are working from home simultaneously and claim the actual cost method, they must apply an appropriate apportionment methodology to isolate individual components of the expenses incurred.

WFH calculations and proof

The ATO has announced that from 1 March 2023, they will take a stricter approach to record-keeping, requiring taxpayers to provide records as they occur, such as timesheets, rosters, logs of time spent accessing employer systems, or a diary of the full year to substantiate their WFH hours. The ATO will no longer accept estimates or four-week diaries from that date.

These revised deduction methods will significantly impact individuals working from home who claim tax deductions for expenses incurred during that time. Accurate record-keeping of WFH hours and related expenses is crucial to ensure that deductions are appropriately claimed. In case of any queries, taxpayers are advised to contact their tax professionals or the ATO directly.

Click here to find out the details of different calculation methods and what are the common mistakes when making WFH claims in our previous article.

How SW can help

• Provide further information and discuss which method suits your circumstances best
• advice around how to ensure the maximum tax benefit is obtained with minimal administration workload
• review expenses incurred and advise which expenses are eligible and can be claimed
• provide assistance with determining the useful life of assets and assist with calculating decline in value of work related items
• assist in calculating work related claims using the two methods and provision of workpapers to support the claim in the event of an audit
• help ensure that you have the necessary evidence and records to support your claims
• minimise any compliance risks.

If you have any queries about the revised deduction methods for work from home expenses or PCG 2023/1, please contact your SW representative or check out the key contacts provided.

Contributor

Tom Warrington

Justin Batticciotto

The post Work from home – ATO revised deduction methods appeared first on SW Accountants & Advisors.

Careful consideration, planning and record keeping should be undertaken throughout this financial year in respect of work related home office expenses in order to maximise the deduction at year end.

Examples of WFH deductions you may be able to claim

• Heating, cooling and lighting
• Telephone call and phone rental costs relating to landline and mobile phones
• Internet data costs
• Decline in value of furniture and fittings such as desks, chairs, shelving and cupboards which you use for work-related activity
• Decline in value of office equipment such as computers, laptops, tablets, smart phones and printers which you use for work related activity
• Computer consumables such as printer ink and stationery
• Costs of repairs to home office furniture and fittings
• Home office cleaning expenses.

The rules:

• Expenses incurred must be directly related to work;
• Must have been paid out of own pocket; and
• Cannot have been reimbursed by the employer.

What has changed?

From 1 March 2020 to 30 June 2022, an actual home office is not required in order to claim home office expenses. 

Prior to 1 March 2020, a home office was required to be a designated room or area in the home set aside just for work, not shared by other people and not used for other purposes.

The ATO will now allow home office expenses to be claimed when working from the kitchen table or from a sofa.

Methods to calculate your WFH claim

1. Shortcut method

Using the short cut method, a tax deduction of 80 cents can be claimed for each hour worked from home.

This method covers costs such as:

• Electricity and gas
• Telephone
• Internet
• Decline in value of equipment and furniture.

This method is suitable for those working from home, without a dedicated home office space and making do. 

If there are multiple individuals working from home, each individual can claim 80 cents per hour. This includes both members of a couple living together.

2. Fixed rate method

Using the fixed rate method, a tax deduction of 52 cents can be claimed for each hour worked from home.

This method covers costs such as;

• Electricity and gas
• Decline in value of furniture and fittings
• Repairs to your home office equipment, furniture and furnishings
• Cleaning.

To use this method, you must have a dedicated workspace in your home. 

After claiming using the fixed rate, a claim for telephone, internet and decline in value of technology items, stationery and computer consumables can also be made.

3. Actual cost method for home expenses

Using the actual expenses method, the claim is calculated by calculating the actual expenses incurred to produce income when working from home.

This may include the following expenses:

• Electricity and gas
• Decline in value of furniture and fittings
• Decline in value of decline in value of telephones, computers, laptops or similar devices
• Phone expenses
• Internet expenses
• Cleaning
• Computer consumables and stationery.

For example, any electricity costs claimed will need to be calculated by looking at the cost per per kilowatt of power and the number of hours used for work related purposes. Similarly, telephone expenses bills will need to be itemised. Calls and data incurred specifically for work related purposes will need to be summarised.

Common mistakes made when calculating WFH claims

• Not apportioning shared bills.  Mistakenly individuals often claim the entire monthly bill even though the cost of that bill is shared with others.  For example, if the monthly internet bill is $100 and it is shared by two individuals, the claim is then $50 per individual and not the full $100
• Not having a good understanding how the depreciation rules work.  Assets purchased such as desks, chairs, filing cabinets, computers and printers have different “working lives” therefore, specific depreciation rates should be applied
• Claiming home office expenses when there is not a dedicated room or office in your home
• Claiming a too high a work-related proportion for a particular type of expense.  For example; the personal use of telephone or internet should not be claimed
• Not keeping appropriate records to substantiate the expense
• Not making a WFH claim when you are entitled to .80 cents per hour. This adds up.

What should you do prior to year end in order to maximise WFH claims

• Keep record of the number of hours worked from home each week over the financial year.  This could be a diary or timesheet; and
• Keep receipts for all eligible expenses so each method can be considered to work out the highest claim.

How can SW help

• Provide further information and discuss which method suits your circumstances best
• Advice around how to ensure the maximum tax benefit is obtained with minimal administration workload
• Review expenses incurred and advise which expenses are eligible and can be claimed
• Provide assistance with determining the useful life of assets and assist with calculating decline in value of work related items
• Assist in calculating work related claims using the three methods and provision of workpapers to support the claim in the event of an audit.

Contributors

Janelle McPhee

The post What can you claim working from home? appeared first on SW Accountants & Advisors.