Last year’s ABS Census showed that in August last year 40% of employed people were regularly working from home (WFH), up from 30% pre-pandemic. Up until 30 June 2022, taxpayers who were working from home had 3 options for working out how to claim their WFH deductions, being 1) Actual expenses, 2) Set rate $0.52 per hour, 3) Shortcut $0.80 per hour (applicable from March 2020 to June 2022).
On 16 February 2023 the ATO finalised their Practical Compliance Guide (PCG 2023/1) outlining their new compliance approach to people claiming WFH deductions. The guide replaces the second and third options above with what they call the revised fixed-rate method and is applicable from 1 July 2022.
It’s worth pointing out that an ATO Practical Compliance Guide is their statement on how they will approach compliance and when they will allocate compliance resources to various tax issues. Colloquially, adhering to a PCG is often referred to as ‘swimming between the flags’.
- Fixed rate WFH deduction calculation has changed
- Requirement to keep record of all hours actually worked from home to use the revised fixed-rate method from 1 March 2023
- Need to keep some receipts for costs covered by the revised fixed-rate method, but not all
- No longer need a dedicated separate home office to utilise the revised fixed-rate method
- Different members of the same household can use different methods for claiming deductions
The revised fixed-rate method
The new method available to claim WFH deductions involves claiming $0.67 per hour worked at home to cover the costs of utilities, phone and internet and stationary/computer consumables. In addition to $0.67 per hour for these costs, depreciation on work related equipment can also be claimed.
The revised method covers the totality of deductions available for these costs. So if you use the revised method, you cannot make a separate claim for mobile phone costs, even if you use your phone both at home and at the office or on the road for work.
Entitlement to WFH deductions
Taxpayers can now use either an actual cost approach or the revised fixed-rate method in the guide to claim WFH deductions. The guide outlines 3 criterion to satisfy to be able to rely on the revised fixed-rate method. These are:
- Working from home
- Incurring deductible additional running expenses
- Keeping and retaining relevant records
These will be explored further below. In addition to these requirements, it is important to remember the general deduction principles that still apply. These are that the expenditure must:
- Be incurred in the course of gaining or producing assessable income, or necessarily incurred in carrying on a business
- Not be capital in nature, or private or domestic in nature
- Not be incurred in producing tax exempt income
- Not be prevented from being deducted under another provision of the Tax Act
Capital expenditure can be deducted over time if it qualifies as a depreciable asset and any expenditure that has a mixed private/business use can be apportioned accordingly.
Criteria 1 – Working from home
Whilst this sounds straight forward, the ATO has highlighted that you must be carrying out substantive work duties (or running your business) that relate directly income producing activities from home. The two key points here are:
- Minimal tasks such as occasionally checking emails or taking phone calls whilst at home do not qualify as working from home
- You no longer need a separate home office or dedicated work area set aside in your home to rely on the guide (but would need one to claim certain actual costs under that method)
Criteria 2 – Incurring deductible additional running expenses
To satisfy this, you must incur additional costs for at least one of the following:
- Energy for lighting, heating/cooling and powering work equipment
- Mobile and/or home phone
- Stationary and computer consumables
The amount needs to be paid and if a third party such as your employer reimburses you for additional running costs or is incurring them on your behalf, then you don’t satisfy the criterion. If invoices are in the name of one member of the household, but they are shared costs, then each party that contributes to paying the bills has incurred the cost.
If someone working at home doesn’t contribute to the bills, then they do not satisfy the criteria and cannot rely on the guide. Paying board is generally private in nature and would not satisfy this criterion.
Criteria 3 – Record keeping
You must keep records showing the total number of hours worked from home during the income year, along with one document, such as invoice, bill or credit card statement (if there is sufficient information on it) for each additional running expense incurred.
- Must keep a record for the whole year, which could be in the form of timesheets, rosters, or a diary or similar document kept contemporaneously
- You cannot use an average or a representative period of time, such as tracking 6 weeks and then extrapolating that out for the year
For the 2023 income year only as a transition, you need a record that is representative of hours for 1 July 2022 – 28 February 2023 and then a record of total hours actually worked for 1 March 2023 – 30 June 2023.
- Documents must show what the expense is and that you have incurred it
- For energy, internet and phone, keep one monthly or quarterly bill. If it’s not in your name, then you need to keep additional evidence showing you incurred the expenses
- Stationary and consumables keep one receipt for an item purchased
For depreciable assets, there is no change to record keeping, so need to keep purchase receipts showing what the asset is, date and cost of acquisition. For mixed use, such as office furniture or a laptop, you need to keep a record of the split between business and private use. This can be a diary for a representative period, similar to a car logbook.
Example and comparison
|What||Revised Fixed-Rate||Actual Costs||Comment|
|800 hours @ $0.67||$536||N/A||Records kept to prove hours worked|
|Utilities – 10% of $2,000||N/A||$200||Must have a separate dedicated home office|
|Internet & Phone – 50%||N/A||$600||Must recognise private use, including other household members|
|Stationery & Ink – 100%||N/A||$150||Must be used only for work to claim 100%|
|Assets < $300||$280||$280||Business portion immediately deductible|
|Depreciation – other||$700||$700||Business portion deductible over effective life|
In this comparison, it is better for the taxpayer to use the actual costs method to claim their deductions. However, the utilities are only available if they have a separate dedicated home office area used for working at home and can prove that 10% of the costs is a reasonable amount for the incremental costs of working at home.
Conversely, if they undertake their work in general household space, then they cannot claim any of the utilities. In this example, they are still better off with actual costs, but will need to be able to prove that home phone and internet is 50% business/work related, when factoring in other household members and the amount of private use for things like TV/Movie/Music streaming relative to the amount used for work purposes.