- The Actual Method: You claim the actual amount of expenses by keeping records and written evidence to determine the work-related proportion of actual expenses incurred. This can be difficult particularly in relation to the work-related component of energy and communication expenses e.g. working out how much internet data or how many kWh of energy you’ve used and substantiating that.
- The Fixed Rate Method: You claim a fixed rate of $0.52 per hour worked from home, which included a provision for depreciation on home office furniture and furnishings, electricity and gas for heating/cooling/lighting, and cleaning. Under this method, you were required to maintain a dedicated work space, and keep records showing a detailed usage pattern over a 4 week period.
- The Shortcut Method (Covid rate): You could claim $0.80 per hour which included provision for depreciation, electricity and gas, mobile and home phone expenses, and internet. This method was effective until 30 June 2022 and is no longer available.
It’s the Fixed Rate Method of deductions that has had some significant changes.
The fixed rate will increase to $0.67 per hour, effective from 1 July 2022. This amount will include a provision for energy expenses (electricity, gas, heating/cooling, for electronic items used while WFH), internet expenses, mobile/home telephone expenses, and stationery and computer consumables.
You can continue to claim for depreciation on office equipment.
So what is the difference?
- You are no longer required to maintain a dedicated work space
- You can now claim depreciation on household furniture and furnishings
- You can now claim cleaning expenses separately
- You cannot claim mobile/phone and internet expenses separately
- You cannot claim stationery and computer consumables separately.
There are also substantial changes to the record keeping requirements under the Fixed rate method. Taxpayers must keep a record of hours WFH for the entire income year – estimates will not be accepted. These records should be in the form of timesheets, rosters, logs of time you have spent accessing employer systems or online business systems, time-tracking apps, a diary or similar document kept contemporaneously.
Under the revised $0.67 Fixed Rate Method, you must also be able to show that you incurred your portion of expenses. E.g. if the electricity bill is in your partner’s name or a housemate’s name, you must be able to show that you contribute to the bill. For a partner, a joint bank account would be sufficient. For housemates you would need to show bank transfers for your contribution, or a lease agreement showing that you share the property, and therefore the expenses with others.
Note that paying board does not count as incurring the expense – as board arrangements are considered private in nature. Children who live at home with their parents and don’t contribute to bills won’t be able to use this method either.
Obviously this change is being released after the commencement of the financial year, so you might not have a diary or record of your WFH hours for the year to date. As such, for the 2023 Financial Year (ending 30 June 2023):
- For 1 July 2022 to 28 February 2023 – You can keep a record which is representative of the total number of hours WFH
- For 1 March 2023 to 30 June 2023 – You must record the total number of actual hours WFH
So, how do you decide which rate to use?
- Types of expenses: While the $0.67 per hour rate is usually sufficient for typical phone/internet usage while WFH, if you have substantial mobile/phone or internet costs related to working from home, you might consider using the Actual method, given you cannot claim these separately under the Fixed Rate Method.
- Time and effort: The fixed rate method may be simpler and quicker to use as it only involves a flat hourly rate, while the actual method requires more effort to calculate and document all expenses.
- Accuracy: If you choose the fixed rate method, you may not be claiming the full amount of your work-related expenses. If you choose the actual method, you need to ensure that your expenses are accurately calculated and supported by evidence.
- Record-keeping: While both methods require you to keep detailed records of expenses, if you choose the actual method, you need to be able to prove the portions of the expense that you’ve claimed.
It’s important to note that the decision on which method to use will depend on your individual circumstances, so it may be worth seeking professional advice before making a decision.
Claiming a deduction for expenses incurred for working from home? Make sure that you:
- Keep a record of the hours you work from home, ideally as they happen
- Keep records of your expenses (e.g. receipts & bills), and proof of the portion of those expenses that are incurred by you
- If in doubt – seek professional advice.
The articles, templates, and media posted on this blog do not give business, accounting, taxation or financial planning advice and should not be relied upon as such. The articles are intended to provide information in a summary form and are general in nature. Formal business, accounting, taxation or financial planning advice should be sought in particular matters. O’Connells OBM Pty Ltd accepts no liability in respect of this information and any person acting solely on the information contained within does so entirely at their own risk.