The Australian Taxation Office (ATO) has announced new updates on how one can claim expenses for working from home. From 1 July 2022 onwards, you can choose either to use the ‘actual cost’ method or a new ‘fixed rate’ method (67 cents per hour) based on what best matches your scenario. No matter what method you choose, you have to collect and maintain certain records to access the claim.
The ABS Characteristics of Employment provides information on whether people usually work from home. The concept of working from home stems from pre-pandemic times and includes people who did so: to catch up on work; as part of a flexible work arrangement; to reduce overheads/have a home office; or as part of their employment conditions. The proportion of people who usually work from home has increased from 30% in 2015 to 41% in 2021. It is expected that some of the recent increase could be explained by the COVID-19 pandemic. However, the estimates were generally trending upwards before this time.
Data is released every two years and can be analysed by industry, based on a person’s main job (most hours worked per week). In August 2021, the five industries with the largest proportions of people who usually worked from home were:
- Financial and Insurance Services (77%)
- Professional, Scientific and Technical Services (70%)
- Information Media and Telecommunications (65%)
- Education and Training (61%)
- Rental, Hiring and Real Estate Services (61%).
The first issue for claiming expenses is that there needs to be a link between the expenses you incurred – and the method you make money. If an incurred expense doesn’t match your work or only half relates to your work, you won’t be able to claim the full expense as a deduction.
On the other hand, the second issue is that you have to incur expenses related to working from home.
The New ‘Fixed Rate’ Method
Previously, there were two fixed-rate methods for the 2021-22 income year:
- A cover-all 80 cents per hour rate for costs incurred when you work from home (it was valid from 1 March 2020). This Covid-19-related rate was likely to cover all additional overhead costs linked to working from home, or
- If you had space for work but you were not running your business from home, you could access 52 cents per hour while you worked from home to cover the running expenses of your home. However, this rate doesn’t cover certain items, including depreciation of electronic devices that can be claimed separately.
From the 2022-23 financial year onwards, the Australian Taxation Office has merged these two fixed-rate methods to come up with one revised method that can be accessed by anyone working from home, irrespective of whether they are working at the kitchen table or have a dedicated space.
67 cents per hour is the newly announced rate and it covers your energy expenses (gas and electricity), phone usage (home and mobile), stationery, internet, and computer consumables. You are allowed to separately claim deductions of the expense of the decline in assets’ value such as computers, maintenance, and repairs for these assets, and on the other hand, if you have a dedicated home office, it will include the cost of cleaning the office. If more than one person is working from the same home, each person can claim using the fixed rate method if they meet eligibility criteria.
What proof does the ATO need that you are working from home?
The ATO requires A record of hours for the income year – this can be in any form, provided it is kept contemporaneously. For example, records may be kept in one of the following forms:
- timesheets
- rosters
- logs of time the taxpayer spent accessing employer systems or online business systems
- time-tracking apps
- a diary or similar document kept contemporaneously.
Furthermore, you also need to maintain a copy of at least one document for every expense you incurred during the year that is covered by the fixed rate method.
It could include bills, invoices, or credit card statements.
Keeping records of running expenses
The taxpayer must also keep evidence for each of the additional running expenses that they incurred.
For energy, mobile and home phone and internet expenses, the taxpayer must keep one monthly or quarterly bill. If the bill is not in the taxpayer’s name, they will also have to keep additional evidence showing they incurred the expenses, e.g. a joint credit card statement showing payment or a lease agreement showing they share the property, and therefore the expenses, with others.
For stationery and computer consumables, which are occasional expenses, the taxpayer must keep one receipt for an item purchased.
Each household member who contributes to the payment of an expense that is listed on a bill in the name of one person but the cost is split will be considered to have incurred it. You need to maintain these records so you can prove your claim. If you don’t have this proof at that time, you will not be able to claim deductions.
According to the ATO, you will no longer be able to give estimates or a sample diary over four weeks to claim work-from-home deductions. From 1 March 2023, you will have to show the actual hours you worked from home.
Keeping records for decline in value
As the decline in value of depreciating assets is not covered by the revised fixed-rate per hour, to claim a deduction for decline in value the taxpayer must keep the written evidence required by Div 900 or the ITAA 1997
An employee must keep, for each depreciating asset, a document which shows:
- the name or business name of the supplier
- the cost of the asset
- the nature of the asset
- the day the asset was acquired
- the day the record was made out.
The taxpayer must also keep records which demonstrate their work-related use of the depreciating asset. This can be evidenced by records of a representative four-week period that show personal and income-producing use of the depreciating assets.
For depreciating assets used in carrying on a business, they must keep records that record and explain all transactions.
If you have any questions regarding these changes – de Kretser is here for you.
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