Changes to the way you claim working from home deductions are set to impact millions of taxpayers, particularly the small business community of solopreneurs, freelancers and contractors who conduct all or part of their business from home.
The Australian Taxation Office (ATO) has changed the way that taxpayers claim deductions for costs incurred when working from home – and the rules have got substantially more complicated.
Eligibility to claim
To use the fixed rate method, you must:
- incur additional running expenses as a result of working from home
- have a record of the total number of hours you work from home and the expenses you incur while working at home.
What’s covered by the rate
The revised fixed rate of .70 cents per work hour (from 01.07.2024) covers:
- Energy expenses (electricity and gas) for heating, cooling and lighting
- Mobile and home phone usage expenses
- Home and mobile internet and date expenses
- Stationery and computer consumables such as printer ink and paper
The rate per work hour includes the total deductible expenses for the above additional running expenses. If you’re using this method, you can’t claim an additional separate deduction for these expenses.
Note that under the new rules, if you use your mobile phone for work purposes when you are out-and-about, as well as at home, you can no longer claim a separate deduction for this use and still use the fixed rate method.
If you wish to claim actual use of your mobile phone (or home internet), you must claim using the actual method for all working from home expenses (see below).
What can be claimed separately
- The decline in value of assets used while working from home, such as computers and office furniture.
- The repairs and maintenance of these assets.
- The costs associated with cleaning a dedicated home office.
Home office
The revised fixed rate method doesn’t require that you have a dedicated home office space to claim working from home expenses. So, if you work from the kitchen or living room, you can still claim a deduction.
Compliance and substantiation
The biggest burden of the new fixed rate is the amount of substantiation required to claim.
You need to keep a record of all the hours worked from home for the entire income year.
The ATO won’t accept estimates.
Records of hours worked from home can be in any form, provided they are kept as they occur. For example, timesheets, rosters, logs of time spent accessing employer or business systems, or a diary for the full year.
In addition, records must be kept for each expense that you have incurred which is covered by the fixed rate per hour. For example, if you use your phone and electricity when working from home, you must keep one bill for each of these expenses.
Actual cost method
The actual cost method hasn’t changed. You can claim the actual work-related portion of all running expenses. To claim this method, you must have an area set aside as a dedicated home office.
Compliance obligations include keeping detailed records for all the working from home expenses being claimed, including:
- All receipts, bills and other similar documents to show you have incurred the expenses
- A record of the number of hours worked from home during the income year (either the actual hours, or a diary or similar document kept for a representative 4-week period to show the usual pattern of working at home).
- A record of how you have calculated the work-related and private portion of the expenses (for example, a diary or similar document kept for a representative 4-week period to show the usual pattern of work-related use of a depreciating asset, such as a laptop).
Many taxpayers find the substantiation requirements involved in claiming the actual cost method burdensome and time consuming, hence the popularity of the fixed rate.
But now, the fixed rate comes with its own burdensome compliance obligations, which is bound to prevent many taxpayers from claiming at all.
WHAT NEXT
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This article is provided as general information only and does not consider your specific situation, objectives or needs. It does not represent accounting advice upon which any person may act. Implementation and suitability requires a detailed analysis of your specific circumstances.