Working From Home Expenses: What’s Changed? Tax Deductions 2023 FY

By Kaleem Ulah

June 23, 2023

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The process through which employees can claim a tax deduction for their home office expenses was modified at the beginning of the 2023 fiscal year. This modification took effect on January 1, 2023. Before this fiscal year, there used to be three methods for all working from home. They are the actual costs method, fixed method and the shortcut method. However, the shortcut method will be discontinued as of July 1, 2022.

The ‘fixed rate method’ and the ‘actual cost method’ are the only two options to claim deductions for expenditures incurred while ‘working from home’ in 2023. Neither of these methods involves a percentage of the expenses incurred. As a direct consequence of this, the rules for verification of home office deductions have been modified. Beginning on July 1 2022, taxpayers may be required to maintain a stricter level of written records to prove their claim. Let’s go through what each method involves and how to go about them. 

Actual Costs Method

Individuals have the ability, under the actual cost method, to claim a deduction for expenses related to working from home that are incurred as a direct result of working from home. In most cases, persons such as employees are not permitted to utilise this strategy unless they are required to pay additional operating expenditures. Individuals are required to maintain the following to be eligible for a tax deduction for actual costs:

Actual Costs Method
  • A log of the total number of hours that they spent working from home during the taxable year. 
  • A journal covering a representative period of four weeks to demonstrate their typical routine while working from home.

In addition, whether or not an individual can claim a sizable portion of their expenses is contingent on whether or not they have kept the necessary paperwork. Take, for instance:

  • Individuals must determine their work-related phone and internet usage over four weeks to serve as a representative sample.
  • Individuals would need to calculate the cost of additional expenses, such as heating, cooling, and lighting, based on the total annual hours used for work-related purposes, using their diaries and taking into account other relevant considerations.

In addition, a person who works from home is required to maintain any receipts, bills, and other documents that provide evidence of the additional operating expenditures they incurred while working from home, as well as the method by which the work use was determined.

Because of these requirements for substantiation, The ATO strongly advises individuals and employees to begin keeping records of their expenses and documenting the number of hours spent working from home. Also, to be eligible for a tax deduction for an expense, the expense in question must have a direct connection to the earning of assessable income.

New Revised Fixed Rate Method

Taxpayers can now claim an hourly rate of 67 cents under the new guidance PCG 2023/1. This rate can be applied to certain expenses that are difficult to assign a specific cost to, such as those related to power and internet use. Nevertheless, although the hourly rate has increased from 52 cents per hour, the expenses that are covered by this rate have been amended, and there are now extra responsibilities for the upkeep of records.

Calculating the deductions for the changes in the value of work-related depreciating assets requires a separate calculation. Additionally, the obligation to have a separate room in the house designated as an office has been eliminated.

In contrast to the actual cost approach, which has not been modified in any way, the new fixed rate technique has been brought up to date to more accurately reflect the modern arrangements for working from home. This makes it much simpler to compute expenses and eliminates the need for time-consuming apportionment calculations.

Useful Link: End Of Financial Year 2023 - What Are The Key Changes?

Read also: How to Pay ATO – Step-by-Step Guide

Who is Eligible?

Taxpayers are permitted to compute their deductions using the updated fixed-rate technique provided that they meet one of the following criteria:

  • You must work from home

The taxpayer must be working from home either performing employment tasks or doing business on or after July 1, 2022, to be eligible for tax benefits. The labour that is done ought to be substantial and should have a direct correlation to the generating of income.

  • You must have deductible additional operating expenses.

Because the taxpayer worked from home, they must have incurred additional operating expenditures, which are itemised in PCG 2023/1.  

The new procedure for the fixed rate:

  • Has climbed to 67 cents per hour for those who work from home, up from 52 cents.
  • Dispenses with the necessity of maintaining a specific room in the home as an office to eliminate the threshold for:
  • Both gas and electricity
  • Use of the phone and the internet
  • Computer gadgets 
  • Stationery
  • Permits taxpayers to make a separate claim for the percentage of the value loss that is attributable to work-related wear and tear on depreciating assets, such as office furniture and equipment.

To deduct home-based business expenses, businesses that conduct some or all of their operations from their primary place of residence can use the revised fixed rate approach.

Your customer has to have the following items if they intend to file their tax return for the 2022–2023 tax year using the updated fixed rate method:

  • From July 1 2022, to February 28 2023 – a record that is illustrative of the amount of time they spent working from home
  • Throughout the period beginning on March 1, 2023, and ending on June 30, 2023, a record of the total number of hours they worked from home (such as a timesheet, roster, or diary), as well as evidence that they paid for each of the expenses they incurred that are covered by the fixed rate approach (for example, a phone or electricity bill). They will also require records for any equipment, such as technology or furniture, that they bought to work from home, such as the date the equipment was acquired, the cost of the item, and the provider.

What are The Key Changes?

The Australian Taxation Office (ATO) has clarified that beginning on July 1 2022, taxpayers who work from home have the option of either claiming deductions based on their actual expenses or potentially adopting a revised fixed rate system that employs a rate of 67 cents per hour.  

What are The ato Key Changes?

To be eligible to use the new fixed rate approach, you are required to fulfil the following essential conditions:

  • You must be working from home while performing the responsibilities of your employment or carrying out the operations of your business on or after July 1 2022;
  • You must be incurring specified additional operating expenditures that are deductible under section 8-1 as a result of working from home, and you must keep detailed records of such expenses.
  • You are required to keep and maintain the necessary documents for the time you spend working from home, as well as the additional operating expenses you are incurring as a result of doing so.

Ideal Record-Keeping Rules

For the 2023 fiscal year, you are required to keep the following records to demonstrate that you are eligible for tax deductions related to working from home:

  • A record that is indicative of the total number of hours that you worked from home between July 1 2022, and December 31 2022; and
  • A log of the total number of hours that you worked from home throughout the period beginning on March 1, 2023, and ending on June 30, 2023.

The ATO requires you to keep a record for the whole income year of the number of hours you worked from home during that income year. They will not accept an estimate for the complete income year or an estimate based on the number of hours worked from home during a certain time. 

To file your upcoming 2023 tax return utilising the revised fixed rate technique and claiming 67 cents per hour for working-from-home expenditures, you will need to immediately begin maintaining a record of the actual number of hours that you have spent working from home.

A log of your working hours for the fiscal year can be kept in the form of the following:

  • Timesheets
  • Rosters
  • A journal or other record that is updated regularly and written in the present tense.
Ideal Record-Keeping Rules

In addition to this, you are required to keep documentation for each of the supplementary operating costs that you expended. The papers that you need to retain that you have incurred additional operating expenditures must show both what the expense is and that you have incurred it.  

You must maintain a single monthly or quarterly bill for the costs of your energy, mobile and/or home telephone, and internet service. If the bill is not in your name, you will need to maintain further evidence showing that you incurred the expenses. This may be a joint credit card statement showing payment or a lease agreement proving that you share the property, and therefore the expenses, with others.  

Stationery and computer consumables are examples of incidental expenses; therefore, you are required to preserve a receipt for every item that you buy. When you choose the fixed rate technique, one advantage is that you do not need a specific room in your home to serve as an office.

Expenses you can’t claim

If you are an employee who works from home, you are not allowed to take a deduction for any of the following expenses. These are the following:

  • Even if your employer provides these beverages and other common household necessities at the office, you should still bring your own.
  • Expenses that are directly connected to the education of your children, such as the purchase of supplies and furniture (such tablets and desks), as well as memberships to online educational platforms
  • Things that are provided for you by your work, such as a computer or a phone.
  • Anything that is paid for by or reimbursed by your employer, whether directly or indirectly.
  • The costs associated with owning, renting, or using a residence are referred to as occupancy expenses. 

They are as follows:

  • Interest on mortgages, rent, and council as well as water charges
  • Property taxes and homeowner’s insurance premiums.

Conclusion

It is essential for citizens who work from home to decide which method will be perfect for their taxes. The Kalculators understands that many people will have further questions regarding these changes and how they may affect the requirements that you must fulfil for your tax return and record keeping. However, there is no need to be concerned because we have a team of tax experts that can help. We will determine, based on the information you put on your tax return, which of the available strategies will result in the largest deduction for you. We go through the application process and ensure you get the best out of it. Simply contact us and the Kalculators will handle the difficult process for you.

If you have any query related to work from home expenses and tax deduction 2023, talk our experience accountant for free consultation. Please give us a call on (08) 7480 2593 or send us an email on info@thekalculators.com.au

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About the Author / By Kaleem Ulah

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Kaleem is CEO & Author at "The Kalculators". With more than 10 years of experience in financial services, He built Kalculators to transform your financial challenges into strategic triumphs!

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