Work from Home (WFH) Tax Deductions

IN THIS ARTICLE

• Running expenses versus additional running expenses
• Actual cost method
• Revised fixed rate method

RUNNING EXPENSES VS ADDITIONAL RUNNING EXPENSES

Running expenses and additional running expenses must be differentiated in order to be clear about the costs you can deduct.

Running costs are what you typically pay to use products in your home. Running costs include, for instance, power costs associated with using household appliances.

The costs you accrue as a direct result of working from home, on the other hand, are known as additional running expenses. Some instances of extra operating costs include:

• Considering that you might use your home and mobile phones to contact clients,
• Expenses for office supplies, such as stationery and printer ink since you can be utilising these to print documents, etc.
• Costs associated with using mobile data or home internet to stay connected while working, etc.
• Utility costs, such as electricity or gas to keep your home office comfortable, etc.
• The value of the depreciation in the assets you use to work from home, including your office supplies and furnishings.
• Repair costs to get your work from home equipment back in working order
• Maintenance costs to keep your work from home assets in good working order

You may only deduct additional running expenses from your taxable income, not running expenses. As a result, you must allocate your spending using one of the two strategies described below.

Also keep in mind that, in some cases, you may be able to deduct the costs of having your work related home office cleaned as well as your occupancy costs.

 There are two ways to determine the tax benefits of working from home:

• ACTUAL COST METHOD: This method allows you to claim a tax deduction based on the actual expenses you incur for working from home with reference to the eligible items provided above.
• REVISED FIXED RATE METHOD: This method allows you to claim 67c per hour you work from home and for the eligible expenses discussed above.

ACTUAL COST METHOD

The approach to actual costs hasn’t altered. Taxpayers who work from home may deduct the real portion of all operating costs that is linked to their employment. This entails maintaining thorough records for all reimbursements made for expenses incurred while working from home, such as:

• all receipts, bills and other similar documents to show taxpayers have incurred the expenses, a record of the number of hours worked from home during the income year (either the actual hours or a diary or similar document kept for a representative 4-week period to show the usual pattern of working at home).
• a record of how taxpayers have calculated the work-related and private portion of their expenses (for example, a diary or similar document kept for a representative 4-week period to show the usual pattern of work-related use of a depreciating asset such as a laptop).

If you’re deducting your actual costs associated with working from home, you can’t deduct costs which your employer has already paid for.

REVISED FIXED RATE METHOD

From the 2022-23 income year the 67c per hour revised fixed rate method has replaced the 80c per hour shortcut method for calculating the work related additional running expenses incurred as a result of working from home (WFH). 

To use the new revised fixed rate method, you 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 Income Tax Assessment Act 1997 (Cth) s 8-1 as a result of working from home that is not reimbursed by a third party (ie employer); and
• keep and retain relevant records in respect of the time spent working from home and for the additional running expenses incurred.

The revised fixed rate method doesn’t require you to have a dedicated home office space to claim working from home expenses.

Fixed rate method – WHAT’S COVERED

The 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 stationery and computer consumables such as ink. While the new revised fixed-rate method of 67c per hour is lower than the previously available shortcut method, it 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 above.

However, 3 years on from 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 will be losing around $100 in deductions going forward. For example, a taxpayer working 3 days per week from home at 8 hours per day over 49 weeks will only be able to get a deduction of $787 under the new rate compared to $940 they would previously be able to 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 mobile phones to work from home and elsewhere (ie in the office). The total deduction for the year would consist of the amount covered by 67c per hour.

Fixed rate method – RECORD KEEPING

For the 2022-23 income year only, you need to keep a record that 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 2023-24 and later income years, you need to keep a record for the entire income year of the actual 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 apps, and diaries that are kept contemporaneously.

To be able to claim expenses for 2022-23 and later income years, one document for each of the additional running expenses incurred must be kept. For energy, mobile, phone and internet, 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 that demonstrate the income-producing use of the assets.