Working from home and thinking about claiming a deduction on expenses?
To be eligible to claim a deduction for working from home expenses, you must:
• be working from home to fulfil your employment duties, not just completing minimal tasks
• incur additional running expenses as a result of working from home
• have records to show you incurred these expenses and the hours that you worked from home during the income year.
There are two ways you can claim deductions for expenses incurred while working from home –
- The Fixed Rate Method: You claim a fixed rate of $0.67 per hour worked from home, which covers expenses that are often difficult to apportion.
- 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.
Remember, you can only claim the work-related part of an expense.
Fixed rate method
The fixed rate method allows you to claim a set rate per hour you work from home and covers expenses that are often difficult to apportion.
This includes:
• data and internet
• mobile and home phone usage
• electricity and gas
• computer consumables (for example, printer ink)
• stationery.
You don’t need a dedicated home office to use this method.
You can’t claim a separate deduction for
any of the expenses the fixed rate includes.
You can claim a separate deduction for:
• the decline in value of assets used while working from home, such as computers and office furniture
• the repairs and maintenance of these assets
• cleaning (if you have a dedicated home office).
Actual cost method
The actual cost method allows you to claim a deduction for the actual expenses you incur as a result of working from home.
This may include:
• data and internet
• mobile and home phone usage
• electricity and gas
• computer consumables (for example, printer ink)
• stationery
• the decline in value of assets used while working from home, such as computers and office furniture, as well as any maintenance and repairs of these items
• cleaning (if you have a dedicated home office).
The actual cost method requires detailed calculations and records. For example, you will need to know and have records of the cost per unit of electricity and average units used per hour.
As an employee working from home, you generally can’t claim for occupancy expenses, such as rent, insurance or mortgage interest.
The record keeping requirements for either method are extensive, so it’s important that you check you have the correct records before claiming a deduction.
Fixed rate method
You will need the following records:
- a record of all the hours you work from home for the entire year (for example, timesheets, rosters or a diary)
- evidence you paid for the expenses covered by the fixed rate method (for example, if you use your phone and electricity when you work from home, keep one bill for each of these expenses)
- records for any depreciating items you claim as a separate deduction (for example, a computer or office furniture).
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.
Actual cost method
You will need the following records:
- a record that represents the hours you work from home (such as timesheets, rosters or diary showing at least a 4-week regular pattern of work)
- evidence for every expense you claim, including receipts, bills or invoices which show the supplier, amount of the expense, nature of the goods, date it was paid and date of the document
- evidence of your personal and work related use of the items or services you buy and use.
The actual cost method requires detailed calculations and records. For example, you will need to know and have records of the cost per unit of electricity and average units used per hour. In most cases, a bank or credit card statement (on its own) isn’t enough evidence of a work related expense.
As an employee working from home, you generally can’t claim for occupancy expenses, such as rent, insurance or mortgage interest.
Following increased compliance requirements for Tax Agents, we will be asking clients wishing to claim Work From Home deductions for copies of all records. As this is an area we expect to see increased audit activity on, the best advice is that if you don’t have the records, don’t claim the expense.
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’s worth chatting to your client manager 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.