Working from Home? Here's How to Claim Expenses Correctly under the 67 Cents Method and Avoid Audit Risk
The Australian Taxation Office (ATO) has recently issued new guidelines regarding the claiming of expenses for working from home or home office purposes. These guidelines are effective from 1 July 2022, and it's important to understand how they work in preparation for your 2023 tax return.
Under the new guidelines, the ATO has introduced a revised fixed-rate method for claiming home office running expenses. This method replaces the previous 52 cents-per-hour rate and imposes additional record-keeping obligations on individuals.
The actual expenses method for claiming home office running expenses is still available and remains unchanged. We will discuss the actual expenses method later in this article.
Using the revised fixed-rate method of 67 cents per hour carries a higher audit risk. Failure to maintain records in accordance with the ATO's guidelines (PCG 2023/1) could result in a substantial reduction or complete denial of your tax deduction. It's crucial to adhere to the guidelines meticulously to protect your deduction claim.
What types of expenses can generally be claimed as home office running expenses?
If you engage in genuine income-earning activities from your home, you may be eligible to claim the following expenses, depending on which method you use to work our your tax deduction, provided you have appropriate records:
- Energy expenses (such as gas and electricity consumed for heating, cooling, lighting, and powering work-related electrical items like computers and printers)
- Cleaning costs for a dedicated work area at home (e.g., cleaning of a dedicated home office)
- Phone expenses (including landline and mobile phone)
- Internet expenses
- Computer consumables (such as printer paper and cartridges)
- Depreciation of office furniture and furnishings (e.g., office desk and chair)
- Depreciation of home office equipment (like computers and printers)
What methods were available to claim home office expenses before 1 July 2022?
In the years prior to 1 July 2022, including the 2022 financial year affected by COVID-19, individuals had the following methods available for claiming working-from-home expenses:
- The shortcut (80 cents per hour) method
- The fixed-rate method (52 cents per hour method from 1 July 2018)
- The actual expenses method, which involved analyzing separate additional running expenses incurred while working from home and claiming the work-related portion of those costs. This method could be used alone or in conjunction with the fixed-rate method.
What methods are available to claim home office expenses from 1 July 2022?
In the 2023 financial year, you can choose between the following two methods to claim a tax deduction for working from home:
- Actual expenses method only
- Revised fixed-rate (67 cents per hour) method
Please note that the shortcut (80 cents per hour) method ended on 30 June 2022.
What are the details of the revised fixed-rate method for claiming home office expenses?
The revised fixed-rate method has seen changes not only to the rate (increased from 52 cents to 67 cents per hour) but also to the expenses included in the new hourly rate and the new conditions for eligibility.
How does the ATO define 'working from home'?
To use the revised fixed-rate method, you must meet the following requirements:
- Use your home for work or business purposes, meaning you engage in employment duties or carry out business activities from home.
- Carry out substantial work at home directly related to your income-earning activities. Incidental tasks like taking calls or checking emails will not count as working from home, and you won't be eligible for the revised fixed-rate method.
What expenses are covered by the revised fixed-rate method of 67 cents per hour?
The working-from-home expenses that can be claimed under this method include:
- Energy expenses (gas and electricity)
- Internet expenses
- Mobile and/or home telephone expenses
- Stationery and computer consumables (printing paper and printer cartridges)
You don't need to incur all of the above running expenses while working from home to be eligible for the revised fixed-rate method, but you must keep evidence for each of the running expenses that you do incur.
Can I claim expenses not covered by the revised fixed-rate method of 67 cents per hour?
Yes, you can claim expenses that are not covered by the revised fixed-rate method. For example, depreciation of office furniture and equipment (computers, printers) must be claimed under the actual expenses method.
What records do I need to keep when using the revised fixed-rate (67 cents per hour) method?
It's important to note that the record-keeping requirements for the 67 cents per hour method are far more stringent compared to previous years.
Under the previous 52 cents per hour method, you were not required to keep receipts for running expenses or maintain a log of every hour spent working from home. A four-week representative diary was sufficient to calculate the total hours worked from home for the entire year.
However, starting from 1 July 2022, the 67 cents per hour method requires more detailed records. Here's what you need to keep:
Receipts and Records:
You must keep receipts and records as evidence of the type of expenses incurred while working from home.
For electricy, gas, mobile and home phone, and internet expenses you must keep one monthly or quarterly bill. If the bill is not in your name, you'll need to provide additional evidence to prove that you incurred the expenses. This could be a joint credit card statement showing payment or a rental agreement to show that you share the property, along with the expenses, with others.
For stationery and computer consumables, which are considered occasional expenses, keep one receipt for each type of item you purchase.
As experienced tax accountants in Melton, we recommend that you keep all receipts for all expenses incurred
Hourly log or diary:
From 1 March 2023 to 30 June 2023, you are required to maintain a detailed log or diary of every hour worked from home. The ATO will no longer accept estimates for this period.
For the period between 1 July 2022 and 28 February 2023, you can still use a four-week representative diary to show the total number of hours worked from home. This exception is allowed because the new rules were announced later in the 2023 financial year, and taxpayers may not have been aware of the stricter record-keeping requirements.
From 1 March 2023 onward and for future income years, you must keep a detailed log or diary of every hour worked throughout the entire year.
From 1 March 2023, under the fixed-rate method, the ATO will not accept an estimate based on hours worked during a shorter period during the income year. That is, a four-week representative diary is no longer acceptable.
What will the ATO accept as a record of hours worked from home?
To evidence the hours worked from home, the ATO will accept the following records:
- Detailed diary records showing the hours worked each day.
- Time-tracking apps.
- Any other similar documents that clearly indicate the hours worked from home.
Can I claim the 67 cents per hour method if I don't have a dedicated work area in my home?
Interestingly, the ATO has made a concession under the revised fixed-rate (67 cents per hour) method. You are no longer required to have a dedicated work area exclusively set aside for work or business purposes.
Previously, under the fixed-rate method, you could only claim working-from-home expenses if the area of your home used for work was exclusively dedicated to work. For example, if you were working on your laptop in the lounge room while your partner watched TV, this did not count as working from home, and a tax deduction couldn't be claimed. The area was not used exclusively for work.
I use my mobile phone while working at home and outside of my home. Can I claim this?
No, you cannot separate the 67 cents per hour method claim for expenses incurred outside of the home office. The method is designed to cover your total deduction for mobile phone, internet, stationery, and consumables used both at home and outside of the home. However, the number of hours you claim must strictly relate to the hours worked at home and must be supported by your log of hours.
Many taxpayers may find this unfair, especially if they have significant mobile phone expenses. However, the ATO has stated that including mobile phone expenses in the fixed rate overcomes the challenge of apportioning these costs. Taxpayers can still claim deductions for the depreciation (decline in value) of their phones, outside of the fixed-rate method. The ATO provides a similar rationale for including internet expenses in the revised fixed rate.
My partner and I both work in the same home. Can we both claim under the 67 cents per hour method?
Yes, if multiple individuals are working in the same home and at the same time, each person can use the revised fixed-rate method. However, each individual must meet the conditions for claiming, including using the home for work purposes, carrying out substantial work from home, and incurring the expenses being claimed.
It's important for each individual to maintain appropriate records, including evidence of hours worked from home and the expenses incurred.
How does the revised fixed-rate method work practically?
The revised fixed-rate method allows you to claim a flat rate of 67 cents per hour for each hour worked from home. This rate covers various expenses, such as energy, internet, telephone, and stationery.
When using this method, you multiply the number of hours worked from home by the rate of 67 cents to calculate your deduction.
Can I claim costs associated with renting or owning a home?
The costs associated with renting or owning a home are referred to as Occupancy Expenses. These include expenses like mortgage interest, rent, property insurance, and rates. However, when it comes to the fixed-rate method, only Home Office Running Expenses are considered, as explained in this article.
In most cases, employees working from home can typically claim a tax deduction for Home Office Running Expenses. However, there is a possibility to claim a portion of occupancy expenses if your home qualifies as a "place of business." A home can be considered a place of business if:
- You have a dedicated area exclusively used for conducting business activities.
- Your home serves as the primary base of operations for your income-earning activities, particularly when your employer doesn't provide you with a workspace at a separate workplace or premises.
It's important to note that eligibility for claiming occupancy expenses in relation to your home depends on meeting specific criteria.
What is the actual expenses method?
The actual expense method allows you to claim the specific costs directly associated with working from home. This includes expenses such as electricity, gas, internet bills, phone bills, stationery, and depreciation of office furniture and equipment.
To use the actual expense method, you need to maintain detailed records and evidence of the actual expenses incurred. This may include keeping receipts, invoices, and documentation to support your claims.
It's important to note that the actual expense method requires more record-keeping and can be more complex compared to the revised fixed-rate method. You need to accurately calculate and apportion the work-related portion of each expense based on your home office usage.
Which method should you choose for claiming working from home expenses: the fixed-rate method or the actual expenses method?
When deciding whether to use the fixed-rate method or the actual expenses method for claiming working from home expenses, there are a few factors to consider.
- Simplicity and convenience: The fixed-rate method offers simplicity and convenience since you can claim a flat rate per hour without the need for detailed record-keeping. This method may be more suitable if you want to avoid the complexities of tracking and calculating actual expenses.
- Actual expenses incurred: If you have significant home office expenses beyond what the fixed-rate covers, the actual expenses method may be more beneficial. This method allows you to claim the specific costs directly associated with your home office, such as electricity, internet bills, and stationery. Keep in mind that you need to maintain accurate records and receipts to support your claims.
- Time and effort: The actual expenses method requires more record-keeping and calculations compared to the fixed-rate method. If you have limited time or prefer a simpler approach, the fixed-rate method might be preferable.
- Professional advice: Consulting with a tax agent in Melton can help determine the best approach for your specific situation. At Platinum Accounting & Taxation we provide personalised guidance appropriate to your circumstances.
If you have worked from home during the 2023 income year, we recommend that you use the services of a Registered Tax Agent to help you get your work-from-home tax deduction correct. We're experienced Tax Accountants in Melton, Melbourne. Get in touch with our team on (03) 9746 6479. We're ready to help.