In response to the evolving work landscape, the Australian Taxation Office (ATO) has updated the methodology for claiming working from home deductions. This change, enacted for the 2023 income year, impacts taxpayers who have been working from home anytime between 1 July 2022 and 30 June 2023.
Current methods for work from home deductions
It's no secret that operating from your home office can come with additional expenses. From stationary and energy costs to equipping your workspace with essential tools, these are all necessary investments that fuel your productivity. This is how these expenses can qualify for work-from-home tax deductions.
But first, let's lay down the ground rules around home office running expenses:
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Your Home is Your Main Place of Work: You're not just occasionally checking emails or answering a few calls from your home office. You're dedicating consistent hours, conducting substantial business tasks and duties from your dedicated home office.
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You're Bearing Additional Expenses: The switch to working from home has caused an uptick in your running costs. This might include anything from higher energy bills to new office equipment specifically obtained for your work.
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Record Keeping is Key: To validate these expenses, effective record keeping is crucial. Any receipts, invoices, or other concrete evidence of these costs need to be produced when required.
Remember, it's all about finding the balance between your personal and professional expenses. If an expense is part office, part personal, only the work-related portion can be claimed as a deduction.
Next, let's talk about the method. Ensuring your deduction claim is accurate requires the right calculation method. Starting from 1 July 2022, life is about to get a bit easier with only two tailored methods to calculate your work from home claim:
1. The Revised Fixed Rate Method
Think of this as that reliable flat-rate plan – no more tedious calculations! You get a standard amount per work hour for those additional home office running expenses. Bonus? You don't even need a dedicated home office anymore!
Just keep in mind that some expenses not covered by the revised fixed rate, like the decline in value of your office equipment, need to be considered separately.
In response to the evolving work landscape, the Australian Taxation Office (ATO) has updated the methodology for claiming working from home deductions.
How the Revised Fixed-Rate Method Works
The revised fixed-rate method allows you to claim a standard rate of 67 cents for every hour you worked from home during the specified period for the following expenses:
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Energy costs: This covers the cost of electricity and gas for lighting, heating/cooling your workspace, and running essential electronic appliances used for work.
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Internet expenses: The costs associated with your internet usage for work purposes are covered.
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Mobile and home telephone costs: Expenses arising from the use of these services for work-related communications are claimable.
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Stationery and computer supplies: Computer consumables and daily materials like paper and printer cartridges, essential to the functioning of your home office, are included.
This revised fixed-rate method simplifies how to claim tax deductions as it doesn't require a separate claim for each running work-related expense. With this fixed rate method, at a flat rate of 67 cents per hour of work, all eligible expenses are consolidated.
Fixed rate method record keeping
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To authenticate your claim, it's crucial to maintain accurate records. This includes:
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Keeping your receipts, bills, or invoices corresponding to the running expenses you have incurred.
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Maintaining a record of the number of hours you've worked from home. Here's how you can manage these records:
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For the period from 1 July 2022 to 28 February 2023, the ATO will accept a representative record, for instance, a record of the hours worked from home over a four-week period. This can then be used to estimate the total number of hours worked throughout this period.
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Beginning 1 March 2023, you should keep a precise record of the total actual hours worked from home. Essentially, you will need to account for the hours worked at home each day.
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For any expenses not covered by this fixed rate method, such as computer depreciation, you can revert to the previous actual cost method for claims.
2. The Actual Cost Method
For those who prefer precision, this method involves tracking the actual expenses incurred by working from home and including them in your claim. This method might be more beneficial for those who have higher work-related costs. Those committed to taking advantage of this method and documenting actual expenditures while working from home should:
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Embrace the Extra Running Expenses - To lay the groundwork for claiming actual expenses, you need to shoulder those additional work-from-home expenditures. This could range from a reliable internet connection, additional computer consumables, to your trusty surge in caffeine intake.
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Become a Record-Keeping Pro - Maintaining accurate records of expenses is pivotal for the Actual Cost Method. Keep a close eye on:
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Spent amounts for work-from-home expenses.
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Costs for depreciating assets, like the new home office equipment you procured.
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A clear log of your work-related usage for expenses and depreciating assets.
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Got housemates or family members sharing your workspace? No worries! Just remember, If they're not using the space for work, those additional expenses aren't eligible for your claim.
Prior Year Work-from-Home Methods & the Shortcut Method
Bear with us as we take a moment to revisit the prior work-from-home tax deduction methods that have served us tirelessly. Before the changes implemented on 1 July 2022, we had the following primary options for work-from-home tax deductions:
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The Traditional (Old) Fixed Rate Method - This offered a consistent $0.52 per hour dedicated to home office expenses. It was synonymous with stability, providing a standardized method of taking into account additional costs of running a home office.
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The (Current) Actual Cost Method - For those who sought precision, the Actual Cost Method allowed for claiming the exact expenses endured whilst running the business from home. Although it required extra attention to details and diligent record keeping, the potential for higher deductions justified the effort.
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The Shortcut Method (Pandemic Hero) - In response to the unpredictable times the world faced during the pandemic, the Shortcut Method was introduced. Offering $0.80 per hour as part of a simplified temporary system, this method helped individuals claim work-from-home expenses without the constraint of a dedicated workspace.
As we transition into new methods that add increased flexibility, our team at Trekk Advisory is steadfastly here to support and guide you. It's an opportunity to embrace the changes, reevaluate your tax management strategy, and continue thriving in your ventures.
Regardless of the method you choose, remember to be meticulous with your record keeping. Documenting home office expenses is key to successfully claiming these deductions. The types of records you need to maintain will vary depending on your chosen calculation method.
Beyond the Norm: Claiming Additional Running Expenses Incurred
While working from home offers its unique comforts and conveniences, it also entails specific costs, called 'running expenses.' Typically, running expenses – associated with facilities within your home - have been categorized as private and domestic. However, the dynamics change when you transform part of your home into your productivity hub.
The good news is: you can claim a deduction on the additional running expenses that arise directly because of your home-based work.
The Breakdown of Additional Running Expenses
Here is a compilation of the additional home expenses that maybe eligible for deduction claims:
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Energy Expenses: These encompass electricity or gas costs incurred for heating, cooling, and lighting up your workspace.
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Connectivity Expenses: With virtually everything taking the digital route, your home and mobile internet or data expenses have become an integral work component.
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Communication Expenses: Mobile and home phone expenses are also part of the eligible cost pool.
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Office Supplies: The stationery and office essentials that keep your workspace functional and efficient are valid additional expenses.
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Depreciating Assets: As you continue to use office furniture like ergonomic chairs, stylish desks, and equipment like hi-tech computers, laptops, and software, their value decreases – and this decrease can be claimed.
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Equipment Maintenance: The cost incurred in the repair and maintenance of these depreciating assets is also a part of your running expenses.
In certain cases, if you have a dedicated home office, you might qualify for even more deductions, including:
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Occupancy Expenses: This could be mortgage interest or rent.
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Cleaning Expenses: The cost associated with keeping your workspace neat and clean might be eligible.
Remember that discernment is crucial here. If your employer provides an allowance to cover your work-from-home expenses, it must be reported as income in your tax return.
For those of you operating as a sole trader or owning a business with your home as the primary business place, specific deductions for home-based business expenses can be explored.
Things you can't claim - Understanding non deductible expenses
We couldn't wrap this up without shining a light on those particular expenses that, unfortunately, don't make the grade when it comes to work-from-home tax deductions. Getting a firm grasp of these exceptions is just as crucial for a thorough understanding of your tax responsibilities.
Household Necessities
While working from home blurs the line between your kitchen break and casual office pantry conversations, the tax policies remain clear-cut. The comforting mugs of coffee or tea and other general household items do not qualify for tax deductions, even though these might be complimentary in a typical work environment.
Children's Education-Related Outlays
Navigating the tightrope of managing work commitments and your child's online education can be an intricate dance. However, any associated costs, such as the purchase of educational equipment or online learning subscriptions for your children, are distinctly separate from work expenses and are therefore non-deductible.
Employer-Supplied Equipment
If your employer provides you with necessary gadgets - like a high-powered laptop or a convenient mobile phone – remember, these do not qualify for deductions. These resources are considered part of your employment benefits and are taken care of by the employer.
Reimbursed costs
Expenses reimbursed by the employer are deemed ineligible for tax claims. Since these are compensated costs, they fall outside the purview of work-from-home expense deductions.
Working from home expenses - Wrapping it all up
The Australian Taxation Office (ATO), recognizing the evolving dynamics of the modern workspace, has introduced new methodologies to claim work-from-home deductions. These revisions, coming into force for the 2023 income year, pave the way for taxpayers to navigate their claims efficiently and effectively.
In essence, the ATO's new methodology has distilled the process into two primary options: The Revised Fixed Rate Method and the Actual Cost Method. It's all about simplifying what was previously a convoluted process into a more manageable operation.
The Revised Fixed Rate Method delivers a blanket rate of 67 cents per working hour—a significant feat for those looking for simplicity. Conversely, the Actual Cost Method thrives on precision, requiring a meticulous tally of work-related home expenses for those who've incurred higher costs.
As we delve into these changes, the importance of accurate record-keeping remains at the forefront. Irrespective of the chosen method, thorough record-keeping is the ticket to successful deduction claims. Therefore, the principle of diligence remains, be it preserving receipts and bills, or maintaining a clear log of your work hours.
Navigating these changes, my friends, isn't a journey you have to take alone. Your pals at Trekk Advisory are here to provide a supportive shoulder and a little expert advice. We're tirelessly in your corner, using our know-how to make your tax journey as straightforward as it can be.
