The ATO has released final guidance on working from home expenses in Practical Compliance Guide PCG 2023/1 (“PCG 2023/1”) which provides accepted methods that individuals may use in calculating deductions for additional expenses in relation to running costs (being those costs associated with the use of facilities within the home and which can be contrasted with occupancy expenses such as rent or mortgage interest).
You should be aware of these changes so that you can keep the appropriate records to maximise your tax claims in your 2023 Tax Return.
What are the key changes
From 1 July 2022, the ATO has explained that taxpayers who are working from home can claim deductions based on their actual expenses, or they can potentially adopt a revised fixed rate method which uses a rate of 67 cents per hour.
Revised Fixed Rate Method
Who is eligible to use the fixed rate method?
Taxpayers must satisfy three conditions to be eligible to use the fixed rate method:
First, the work must involve carrying on substantive employment duties or in carrying on business. Occasionally checking emails is not sufficient to meet this condition.
Second, the taxpayer must have incurred deductible additional running expenses of a kind outlined below.
Third, the taxpayer must meet the record keeping requirement.
If multiple people reside, and work, in the same house, each will separately be eligible to calculate their deduction under the fixed rate method providing they are eligible. However, if the actual expenses method is selected, particular care should be taken to ensure that the expenses are appropriately apportioned between them.
Taxpayers that do not meet all three conditions will not be able to rely on the fixed rate method and will need to utilise the actual expenses method.
What expenses are covered by the revised fixed rate method?
The revised fixed rate method estimates the expenses incurred in relation to the following categories:
energy expenses (electricity and/or gas) for lighting, heating/cooling and to run electronic items used for work;
internet expenses;
mobile and/or home telephone expenses and
stationery and computer consumables.
This means two things. First, taxpayers cannot claim additional deductions for expenses in relation to any of these categories, even if they are incurred in relation to working somewhere other than home (i.e. using your mobile for phone or internet when travelling or at the office). Second, depreciation of furniture and equipment (e.g. desk, computer and printer) may be calculated separately (and in addition) to the fixed rate.
The Records You Need to Keep (for revised fixed rate method)
You need to keep the following records to prove your working from home tax deductions for the 2023 financial year:
A record which is representative of the total number of hours you worked from home during the period from 1 July 2022 to 31 December 2022; and
A record of the total number of actual hours you worked from home for the period 1 January 2023 to 30 June 2023.
For the 2024 and later financial years, the ATO expects you to keep a record for the entire income year of the number of hours they worked from home during that income year. An estimate for the entire income year or an estimate based on the number of hours worked from home during a particular period will not be accepted.
What you should do now
To use the revised fixed rate method and claim 67 cents per hour for working from home expenses in your upcoming 2023 Tax Return, you will need to start to keep a record of your actual hours working from home.
A record of your hours for the income year can be in the form of:
timesheets
rosters
a diary or similar document kept contemporaneously.
You must also keep evidence for each of the additional running expenses that you incurred. The documents you need to keep in order to demonstrate that you have incurred additional running expenses must show what the expense is and that you incurred the expense. For energy, mobile and/or home telephone and internet expenses, you must keep one monthly or quarterly bill. If the bill is not in your name, you will also have to keep additional evidence showing you incurred the expenses; for example, a joint credit card statement showing payment or a lease agreement showing you share the property, and therefore the expenses, with others. For stationery and computer consumables, which are occasional expenses, you must keep one receipt for each item purchased.
Actual Expenses Method
Using this method to claim home office expenses in 2023 means you don’t claim 67c per hour, and instead all of your expenses are claimed individually. These include:
Electricity and gas
Home and mobile phone expenses
Internet expenses
Stationery and computer consumables
Cleaning your home office
Depreciation on office equipment that cost more than $300 (E.g computer desk)
Office equipment that cost less than $300.
To use this method, you must keep either:
A continuous 4 week diary that tracks your usual pattern of working from home, or
A full 12-month record of the total number of hours you worked from home during the year.
Then for each deduction you claim using the actual cost method, you specify how much of the item’s use was for work purposes.
Which method is best for me?
That depends on your personal circumstances. For many people the actual cost method will lead to a larger deduction, but some will find the new 67c per hour works out better.
Don’t worry though – based on the information you provided on your tax return, we’ll calculate which method gets you the biggest deduction and apply that to your tax return.
The most important thing for you to remember is the strict new requirements for record keeping, especially tracking the hours you work from home across the year in a calendar or diary.
Please contact us and speak with your accountant if you need any assistance with this so we can help you to maximise your tax deductions in your 2023 and future year Tax Returns.
How can Elite Accounting Solutions Help?
Now more than ever, the team at Elite Accounting Solutions are positioning ourselves to help all our clients preparing for what is ahead of them. If you have any concerns about the income and tax implications of any recent changes, please do not hesitate to contact our office and speak with one of our accountants.
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