You have been able to choose either a new ‘fixed rate’ method (67 cents per hour), or the ‘actual cost’ method depending on what works out best for your scenario. No matter which method you choose, you will need to gather and retain certain records to make a claim.
The first requirement for claiming any deduction is that there must be a link between the costs you incurred and the way you earn your income. If you incur an expense but it doesn’t relate to your work, or only partially relates to your work, you cannot claim the full cost as a deduction.
The second key requirement is that you need to incur costs associated with working from home. For example, if you are living with your parents and not paying any of the expenses for running the home then you can’t claim deductions for working from home as you have not incurred the expenses. Bad news if you’re paying board, the ATO treats this as a personal arrangement so it can’t be claimed.
The new ‘fixed rate’ method
Previously, there were two fixed rate methods to choose from for the 2021-22 income year:
- A cover-all 80 cents per hour rate for expenses incurred while working from home (which was available from 1 March 2020). This COVID-19 related rate was intended to cover all additional running expenses incurred while working from home; or
- If you had a space dedicated to work but were not running a business from home, you could claim 52 cents for every hour you worked from home to cover the running expenses of your home. This rate doesn’t cover certain items such as the depreciation of electronic devices, which can be claimed separately.
It’s clear that working from home arrangements are here to stay for many workplaces. So, from the 2022-23 financial year onwards, the ATO has combined the two fixed rate methods to create one revised method accessible by anyone working from home.
The new rate is 67 cents per hour and covers your utility expenses, phone usage, internet, stationery, and computer consumables. You can separately claim the cost of the decline in value of assets such as computers, repairs, and maintenance for these assets. If you have a dedicated home office, you can also claim the cost of cleaning the office. If there is more than one person working from the same home, each person can make a claim using the fixed rate method if they are eligible.
What proof does the ATO need that I am working from home?
To use the fixed rate method, you will need a record of all the hours you worked from home. The ATO will no longer accept estimates or a sample diary over a four week period.
For example, if you normally work from home on Mondays but one day you have an in-person meeting outside of your home, your diary should show that you did not work from home for at least a portion of that day. There is nothing in the ATO guidance to suggest that claims are limited to standard office hours. So, if you work from home outside standard office hours or over the weekend, make sure you keep an accurate record of the hours you are working so that you can maximise your deductions.
You also need to keep a copy of at least one document for each running cost you have incurred during the year which is covered by the fixed rate method. This could include invoices, bills or credit card statements. Where bills are in the name of one member of a household but the cost is shared, each member of the household who contributes will be taken to have incurred it. For example, flatmates where they jointly contribute to costs.
You need to keep these records for five years so that if the ATO come calling, you can prove your claim. If this proof is not available at the time, the deduction will be denied. If your work from home diary is electronic, ensure you can access this diary over this time as well.
The ‘actual’ method
The ‘actual method’ may produce a better result for your deductions if expenses are higher. With this method, you can claim the actual additional expenses you incur when you work from home. However, you will need to ensure you have kept records of these expenses and the extent to which the expenses relate to your work.
Using this method, you can claim the work-related portion of:
- The decline in value of depreciating assets – for example, home office furniture and furnishings, phones and computers, laptops or similar devices.
- Electricity and gas for heating, cooling and lighting.
- Home and mobile phone, data andinternet expenses.
- Stationery and computer consumables, such as printer ink and paper.
- Cleaning your dedicated home office.
Be careful with this method because the ATO are looking closely to ensure these expenses are directly related to how you earn your income. You are unable to claim personal expenses such as coffee, tea and toilet paper even if you do use these items when you are at work. Nor can you claim occupancy expenses such as rent, mortgage interest, property insurance, and land taxes and rates unless your home is a place of business. It is unusual for an employee’s home to be classified as a place of business.
I run a business from home, what can I claim?
Where your home is also your principal place of business and an area is set aside exclusively for business activities, you can potentially claim a deduction for an appropriate portion of occupancy expenses as well as running costs. An example would be a doctor who runs their surgery from home. The doctor may have one-third of the home set aside asa place of business where they see patients.
It is important to keep in mind that Capital Gains Tax (CGT) might be payable on the eventual sale of the home. While your main residence is normally exempt from CGT, the portion of the home set aside as a place of business will not generally qualify for the main residence exemption for the period it is used for this purpose, although if you are eligible, the small business CGT concessions and general CGT discount may reduce any resulting capital gain.