Do you know how to maximise your tax deductions if you work from home?

The last few years have meant a changing landscape to how people work. Some work entirely from home, while others work a hybrid of office and home. Naturally, this leads to extra costs that can be claimed as tax deductions when it comes time to lodge your tax return.

Short cut method

During the pandemic, the government brought in a short cut method of claiming working from home deductions where a fixed rate of 80 cents per hour was calculated which covered all expenses. No other costs could be claimed. This method could only be used between 1 March 2020 and 30 June 2022 only and can’t be used past this date.

Two methods of claiming

Now that 30 June 2022 has passed, two methods for claiming working from home costs can be used. These are:

• Fixed Rate
• Actual Costs

Fixed rate

From 1 July 2022, the fixed rate method was revised and an adjusted rate of 67 cents per hour (previously 52 cents) work/business can be claimed. Expenses covered by the 67c per hour rate include:

• 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.

Pro Tax Tip: If you use the fixed rate method, you can’t claim separate deductions for energy, internet, phone and/or consumables as stated above as these are all covered in the 67 cents per hour rate. For example, if you calculated that your mobile phone expenses for working from home and/or elsewhere exceeded what you could claim by using the 67c per hour then you may be better off claiming the business proportion of your phone and not using the fixed rate method at all. If you have a dedicated home office set up, then you would be best to use the Actual Expenses method of claiming home office running costs.

What about assets?

Bought a desk or a computer for work? Any assets you’ve needed to purchase for work, including desks, desk chairs, printers, computers and laptops are assets that will need to be depreciated. The fixed rate method allows you to claim depreciating assets separately.

Pro Tax Tip: If your assets cost you under $300 each, they can be fully expensed in the year in which you bought them. If your assets costs $300 or over per item, you’ll need to depreciate that asset.

Multiple people working from home in the same house can choose which method they want to use to claim expenses – fixed rate or actual costs. In order for multiple people to claim the revised fixed rate method, additional running expenses should be incurred as a result of working from home, although not every running cost needs to be incurred. For example, if you pay towards your share of the shared electricity bill then you can claim the 67c per hour. If you do not contribute to any of the shared expenses, then you cannot use the fixed rate method.

Pro Tax Tip: If you work from home but pay board, the ATO doesn’t regard your expense as contributing to heating/cooling, electricity or internet cost so this method can’t be used.

How do you calculate your costs?

You’ll need to keep a work diary to work out your costs. To keep a work diary, you’ll need to log your hours worked for four consecutive weeks for any period between 1 July 2022 to 31 December 2022, plus full daily records from 1 Jan 2023 onwards.

• Total your hours worked
• Multiply your hours by 67 cents
• Calculate depreciating assets
• Add these amounts to your tax return to claim your total deductions

Pro Tax Tip: You won’t need a dedicated work area in your home to claim the revised fixed rate method.

1 Jan 2023 onwards – what records do you need to keep?

The ATO work diary requirements will change from a representative period to keeping a daily record of your work hours. A representative period will no longer be accepted. The records you’ll need to keep are:

• Timesheets
• Rosters
• A diary or similar documentation kept continuously on a daily basis

To prove your electricity, gas and internet costs, you’ll need to supply a monthly or quarterly bill. If the bill is not is your name, you’ll need to show evidence that you incurred the expense, such as a joint credit card statement showing payment or a lease agreement showing shared expenses.

Receipts should be kept for stationery and computer consumables purchased.

Records for depreciating assets should be kept for five years after claiming the last depreciating expense. If the receipt you have for your depreciating asset doesn’t specify the nature of the asset, you’ll need to supply the missing details before you lodge your tax return. You’ll also need to keep a four week representative diary of the work-related use of your asset that shows personal income and the income the asset has produced.

If no records are kept, then the ATO won’t allow claims to be made.

Example 1

Bookkeeper George works from home 2 days a week and uses a laptop that his employer provided. He paid for his chair and desk, but was reimbursed by his employer. He uses his own internet, mobile phone, heating, cooling and electricity.

During the year, George kept all relevant information to calculate hours worked, which works out to be 768 for the year. His deduction for the year is;

?768 hours × 67c per hour = $514.18. George can’t claim depreciation for his laptop (employer provided), nor his desk or chair (employer reimbursed the expense).

In his tax return, George is entitled to claim $514.18 as tax deductions.

Example 2

Pierre is a plumber who uses his home computer and mobile phone to send invoices, return calls, make purchases and completes general bookwork and other bookwork. Pierre’s mobile phone bill is in his name so he has incurred the expense. His utility bills are in his partner’s name, and the internet bill is in his and his partner’s name. All of Pierre’s household expenditure is paid from a joint bank account, so Pierre is considered to have incurred the electricity and internet expenses as well.

If Pierre has also kept a 4 week representative diary anytime between July to December 2022 of his working from home hours and a record of all his hours worked from home from 1 January 2023 to 30 June 2023, he can claim the 67c per hour as a tax deduction.

Example 3

Graphic designer Sally works from home 3 days a week and the office 2 days a week. Sally lives with her parents and pays no rent nor makes any contribution to the household expenses. Although she uses her employer-provided laptop and mobile phone and is carrying out work tasks at home, she doesn’t incur any extra costs and is not entitled to deduct working from home expenses.

Example 4

Software designer, Piruntha, works 3 days at home and 2 days in the office, and has a room set aside as an office to work from. Piruntha sets herself to work from home on 1 December with the purchases of a laptop for $1,499, a desk for $250 and an office chair for $299. She also purchases some stationery to use while she is working from home.

Piruntha commences working from home on the 6 December and uses her own electricity, gas, internet and personal mobile phone. She uses her heating and cooling in appropriate times of the year. Using the records she’s kept, Piruntha determines that she works from home for a total of 560 hours using a work diary, taking into account work versus personal use of her computer. She keeps bills for her electricity and gas and also necessary receipts and determines she qualifies to use the revised fixed rate method.

Her calculation is: 560 hours × 67c per hour = $375.20.

She can claim the full cost of her assets because it was under $300, minus private using the following:

Time spent using assets for work = 20 hours per week

Time spent using the assets for private purposes = 5 hours per week

Total hours assets used per week = 25 hours

5 hours per week ÷ 25 hours per week = 20% private use

20 hours per week ÷ 25 hours per week = 80% work-related use.

?The depreciation deduction (related to her work-related use) for the desk and chair is:

Desk:?$250 × 80% = $200

Chair: $299 × 80% = $239.20.

To calculate the depreciation of her laptop, Piruntha uses the depreciation and capital allowances tool on the ATO’s website and chooses to use the diminishing value method. The tool calculates the decline in value of the laptop as:

$1,499 x 100% depreciation rate x 212/365 days = $870.65

$870.65 x 80% business use = $696.52

Piruntha adds the amount calculated using the hourly rate to the work-related depreciation of her laptop, desk and chair. This is calculated as:

$375.20 + $200 + $239.20 + $696.52 = $1,510.36

Even though Piruntha also uses her personal mobile phone for work when she is in the office, she cannot claim any additional deduction for this work-related use of her phone as that is included as part of the hourly fixed rate calculation.

When she lodges her 2022–23 tax return, Piruntha includes a deduction of $1,510 for her working from home expenses at item D5.

Actual Cost

No changes to the actual cost method have been made. To be able to claim actual costs for working from home, you’ll need to incur expenses as a result of working from home, keep detailed records of hours worked for the entire year and show your expenses and the costs of depreciating assets. You must have a dedicated home office area such as a study or spare room.

Using this method, you work out your tax deductions by calculating the actual expenses you incurred as a result of earning your income. You can claim:

Decline in value of depreciating assets – such as home office furniture (desk, chair) and furnishings, phones and computers, laptops or similar devices.

• Cleaning expenses, if you use a dedicated area for working.
• Heating, cooling and lighting – electricity and gas.
• Phone, data and internet
• Computer consumables and stationery – such as printer ink.

Pro Tax Tip: To work out the cost of your heating, cooling and lighting under this method you will need to use the:

• cost per unit of power used (your utility bill has this information)
• average units used per hour, which is the power consumption per kilowatt hour for each appliance, equipment or light used
• total annual hours used for work-related purposes by checking your record of hours worked or your diary.

ITP accountants crunch numbers. They’ll work out the best method to use that will maximise your tax return. If you’d like to chat about the revised fixed rate method and how it will affect you, call 1800 367 487 and chat with a friendly professional today.