Working from home? Here’s what you can (and can’t) claim as a tax deduction

Whilst working from home for the self-employed has been commonplace for years, the number of employees working from home has boomed over the last couple of years for a reason we’re all well aware of: covid. For many, this change will remain permanent – whether it’s for the full five days, or on a part time basis with flexible working arrangements now a mainstay of Australian employment.

What does this mean for your tax?

Working from home means you’re personally incurring costs to earn your income – and that means you might be able to claim those costs as a tax deduction. 

How you’ve set yourself up to work from home has a significant impact on what you can and can’t claim. Do you have a dedicated part of the house with a separate entrance that clients come and go through? Alternatively, have you set a room aside (like a study or bedroom), or do you just sit on the couch with the laptop perched on the coffee table? Everybody’s circumstances differ, and therefore so can their tax outcomes.

For example

You don't incur additional running expenses if other members of your household (who are not working from home) are in the same room as you while you are working from home. If you work from your lounge room while your partner and children watch television you aren’t incurring any additional costs for lighting, heating or cooling as a result of working in that room – so you can't claim a deduction for them.

The ATO requires evidence of a more-than-incidental use of an otherwise private area of the house in order to claim a deduction. If you’re simply checking emails for next week’s roster occasionally on the couch, you may be not entitled to any claim.

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What if my home is not a place of business? 

If your home is not a place of business – as is the case of most employees – then your claims are restricted to running expenses only. This may include a portion of your heating, lighting, telephone, electricity and internet bills and depreciation and repairs of equipment. Employees are generally not able to claim occupancy costs.

What tax deductions am I entitled to if my home is also a place of business?

If you are working from your home and it’s used as a place of business (generally applies to the self employed and business owners), then further deductions for the relevant proportion of attributable occupancy expenses such as rent, interest, rates and insurance may be also claimable. But beware, if you are a homeowner and claim these costs, the normal capital gains exemption you are entitled to when you sell your home will be reduced, meaning you have to pay some tax on the increase in value of the home you lived (and worked) in. This means that you can’t claim a portion of these occupancy costs and maintain the capital gains exempt status of your home. Running costs however, such as heating and lighting, do not impact the capital gains tax status of your home. 

If you work from home the costs you may be entitled to claim include:

• Electricity and gas bills (heating, cooling and lighting)
  
• Furniture purchased for the office area (eg desk, chairs)
  
• Equipment (eg. computers, printers)
  
• Repairs to home office equipment and furniture 
  
• Computer consumables (eg printer ink and paper)
  
• Stationery (eg pens, paper, calculators)
  
• Phone (mobile and/or landline)
  
• Internet expenses 
  
• Cleaning your home working area (including cleaning products or paying a cleaner to do it for you)
  

Note that Taxation Ruling TR 93/30 “Income tax: deductions for home office expenses” continues to apply and should be read if you want to fully understand what can be claimed.

How are WFH tax deductions calculated?

There are two ways you can calculate your claim – by calculating each individual expense (actual cost) or using a simplified (shortcut) method offered by the ATO, recently renamed the fixed cost method.

The ATO shortcut rates have changed over recent years: 

$0.67 p/hr (new rate starting 2022/23)

$0.80 p/hr (special covid rate, not available after 2021/22)

$0.52 p/hr (long standing rate, not available after 2021/22)

Along with the new $0.67 rate acquiring the name of the “fixed rate” method, the ATO also announced significant changes to what you can and can’t claim as well as extra record keeping requirements.

The new fixed rate and associated rules are outlined in the ATO’s publication Draft Practical Compliance Guideline PCG 2022/D4.

Fixed rate method

The new fixed rate per hour (only) covers the following expenses:

• Data and internet
  
• Mobile and home phone usage
  
• Electricity and gas
  
• Computer consumables (printer ink)
  
• Stationery
  

You can still claim a separate deduction for:

• The decline in value of assets used while working from home, such as computers, printers and office furniture (provided you paid for them)
  
• Any repairs and maintenance of the above items
  
• Other working expenses you incur as a result of working from home which are not listed above
  

Very important note – if you decide to use this fixed rate you won’t be eligible to claim a separate deduction for any expenses covered by this method. For example, if you use your mobile phone when you are working from home and when you are working from somewhere other than your home, your total deduction for mobile phone expenses for the income year will be covered by the hourly rate of 67c per hour ie. you can’t claim for any of your usage whilst at the office or on site.

What records do I need to keep for the fixed rate method?

This is where the biggest changes have occurred. The ATO announced additional (much stricter) record keeping and evidence requirements for those who wish to use this new fixed rate method. 

To claim working from home expenses using the revised fixed rate method, you will need the following records:

• A record of all the hours you work from home for the entire year (timesheet, roster, diary). The previous 4 week diary approach, or a reasonable estimate of your hours, are no longer allowed. Note that for 2022-23 a transitional timekeeping arrangement is available
  
• Evidence you paid for the expenses covered by the revised fixed rate method. For one off purchases such as printer ink you must keep the receipt. For phone and electricity you must keep at least one bill
  
• Evidence you paid for all other expenses you are claiming that aren’t covered by the fixed rate method eg. receipt for the office chair or printer repairs.
  

Actual cost method

The “actual cost” method means just that – you are claiming the actual costs you incurred, so you need to calculate them yourself.

To claim a tax deduction for actual costs, you need to maintain:

• A record of the number of actual hours you worked from home during the income year; and
  
• A diary for a representative four-week period to show your usual pattern of working at home
  
• Receipts for all expenses being claimed for (electricity bills, telephone bills, purchase receipts etc)
  
• A written record of how you calculated how much you claimed (including how you calculated the work vs private split).
  

Furthermore, the ability to claim a considerable amount of expenses depends on whether the individual has kept appropriate records. For example:

• For phone and internet, individuals need to work out their work-related use over a four-week representative period
  
• For other costs such as heating, cooling and lighting, individuals would need to work out the cost based on the total annual hours used for work related purposes based on your diary and other factors.
  

In addition, you’ll need to keep all receipts, bills and other documents which substantiate the additional running expenses they incurred while working from home, and how the work use was determined.

If you have any questions about work from home tax deductions or would like us to assist with your return, please get in touch.

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