With the surge of remote work in recent years, working from home deductions have become increasingly relevant. Many taxpayers have become used to the shortcut method whereby 80 cents per hour was used to claim working from home deductions.
The ATO recently released Practical Compliance Guideline (PCG) 2023/1, which has brought the shortcut method to an end from 30 June 2022 and updated the accepted methods for claiming deductions on running expenses incurred while working from home from 1 July 2022.
This change has increased the documentary evidence that taxpayers must keep in order to claim tax deductions using the fixed rate method. Given that the PCG was released last month, there will be a transition period for the evidentiary documents.
Calculation of running expenses prior to 1 July 2022
Prior to 1 July 2022 taxpayers could apply one of the following methods to determine the amount of deductible running expenses:
- The shortcut method (temporarily available until 30 June 2022), which was implemented to provide administrative relief during the peak of the COVID pandemic and allowed a deduction of 80 cents per hour worked from home for all running expenses.
- The fixed-rate method, which allowed a deduction of 52 cents per hour worked from home and covered a subset of running expenses.
- The actual cost method, which required calculating the actual expenses incurred as a result of working from home.
Revised calculation of running expenses from 1 July 2022
With the COVID-related shortcut method now no longer available, only the fixed-rate method and the actual expenses method will be accepted by the ATO from 1 July 2022 onwards.
Revision of the fixed rate method
Further, the ATO has revised the fixed-rate method’s per hour claim and broadened the expenses it applies to. This method now allows for a deduction of 67 cents per hour worked from home (instead of the former 52 cents per hour). We have summarised the changes in the following table.
|Running expenses||Covered by the revised fixed-rate method from 1 July 2022||Covered by the fixed rate method prior to 1 July 2022|
|Energy expenses (electricity and gas for lighting, heating, cooling etc.)||Yes||Yes|
|Mobile and home phone expenses||Yes||No|
|Stationery and computer consumables||Yes||No|
|Decline in value of home office furniture and furnishings||No||Yes|
|Decline in value of assets other than home office furniture and furnishings||No||No|
As the revised fixed rate deduction does not include depreciation deductions for assets used to work from home (or repairs made to these assets), such deductions will need to be calculated and claimed separately.
Documentary evidence required
Taxpayers should be aware of the record-keeping requirements that need to be adhered to in order for the revised fixed-rate method to be applied. From 1 July 2022 onwards, the ATO requires the number of hours worked from home to be recorded contemporaneously. This may be through timesheets, rosters, online logs, or a diary. With regards to the expenses themselves, the ATO requires taxpayers to retain records of expenses incurred for each of the expenses covered by the fixed rate method.
As the ATO only recently announced these updates to the fixed rate method, taxpayers will be afforded a transitionary period in respect of their record keeping. In the 2022-2023 financial year, taxpayers must be able to provide both:
- A representative record of the number of hours worked from home between 1 July 2022 and 28 February 2023; and
- A record of the actual hours worked from home from 1 March 2023 until 30 June 2023.
If you have any questions regarding your working from home deductions or record keeping requirements, please contact Kristy Baxter or Angela Stavropoulos on email@example.com or (07) 3023 1300.