Working from home expenses: new fixed rate

A new revised fixed-rate method for calculating working from home expenses will apply from 1 July 2022 onwards. This new rate of 67 cents per hour covers energy expenses; internet, mobile and home phone usage costs, stationery and computer consumables. With the previous shortcut method of 80 cents per hour no longer available, taxpayers will only have the choice between this new revised fixed-rate method and the actual cost method from 1 July 2022. To use the new method, additional record keeping requirements in terms of actual hours worked from home and evidence of the expenses will need to be met.

From the 2022–2023 income year, taxpayers can no longer rely on the 80 cents per hour “shortcut” method, with the introduction of a revised fixed-rate method for calculating the work-related additional running expenses incurred as a result of working from home. Taxpayers are still able to use the actual costs method to calculate the actual expenses incurred as an alternative to the revised fixed-rate method.

To use the new revised fixed-rate method, taxpayers must:

•       work from home while carrying out employment duties or carrying on a business on or after 1 July 2022 (minimal tasks such as occasionally checking emails or taking phone calls while at home will not qualify as working from home);

•       incur additional running expenses which are deductible under s 8-1 of the Income Tax Assessment Act 1997 as a result of working from home that are not reimbursed by a third party (ie the person’s employer); and

•       keep and retain relevant records in respect of the time spent working from home and for the additional running expenses incurred.

The new revised fixed-rate method covers energy expenses including electricity and gas for lighting, heating, cooling and use of electronic items while working. It also covers internet, mobile and home phone expenses, as well as the costs of stationery and computer consumables such as printer ink. While the new revised fixed rate of 67c per hour is lower than the previously available shortcut method, the new method does not include the work-related decline in value of any depreciating assets used during the income year or any other running expenses not specifically covered.

However, three years into the pandemic, with many taxpayers having already purchased depreciating assets early in the piece to be able to perform their duties effectively from home, the lower revised fixed-rate method means many taxpayers may lose around $100 in deductions going forward. For example, a taxpayer working three days per week from home at eight hours per day over 49 weeks will only be able to get a deduction of $787 under the new rate, compared to the $940 they could previously claim under the shortcut method.

In addition, if a taxpayer chooses to use the new revised fixed-rate method, no additional separate deductions can be claimed for any of the expenses covered. This includes instances where taxpayers use their personal mobile phones for both working from home and working elsewhere (ie in the office). The total deduction for the year would consist of the amount covered by the amount of 67 cents per hour.

Taxpayers who choose to use this new method need to ensure that relevant records are kept. For the 2022–2023 income year only, taxpayers will need to keep a record which is representative of the total number of hours worked from home during the period from 1 July 2022 to 28 February 2023, and a record of the total number of actual hours worked from home for the period 1 March 2023 to 30 June 2023.

For 2023–2024 and later income years, taxpayers must keep a record for the entire income year of the number of hours worked from home during that income year. An estimate for the entire income year or an estimate based on the number of hours worked from home during a particular period and applied to the rest of the income year will not be accepted. A record of hours worked for the entire income year can include timesheets, rosters, logs, time tracking app entries and diaries that are kept contemporaneously.

To be able to claim expenses for 2022–2023 and later income years, one document for each of the additional running expenses incurred must be kept. For energy, mobile, phone and internet costs, one monthly or quarterly bill in the relevant name must be kept. If the bill is not in the relevant name, additional evidence such as credit card statements showing payment or lease agreements showing sharing of property and expenses must be present. For stationery and computer consumables, receipts must be kept for any purchases. Those claiming a deduction for any decline in value of depreciating assets must also keep documents which demonstrate the income-producing use of the assets.

If an eligible taxpayer uses the revised fixed-rate method, the ATO undertakes not to apply compliance resources to review a deduction for working from home expenses (unless the taxpayer claims for hours not worked, or claims a separate deduction for any of the expenses listed): see practical compliance guideline PCG 2023/1.

If an objection is lodged in relation to working from home expenses, the ATO says that PCG 2023/1 cannot be relied on to determine whether the taxpayer is entitled to a deduction.

These changes apply from 1 July 2022. The fixed-rate and shortcut methods are not available from this date.

 you would like to know more please contact one of our accountants on 07 4639 1099 or come in and see us at 4 Bowen Street Toowoomba.