The ATO are tightening work from home (WFH) expense claims, which were relaxed during COVID, by introducing a new fixed per-hour rate and increasing record-keeping requirements.
The new rate is 67 cents-per-hour
From 1 March 2023, the ATO requires a record of actual hours worked at home. It will no longer accept estimates.
During the COVID period – in line with the significant increase in people undertaking work from home – the ATO made it easier for taxpayers to estimate their home office claims. The ‘shortcut method’ was introduced on 1 March 2020 and ended on 30 June 2022, when these new rules were put in place.
The ATO has recently issued guidance – PCG 2023/1 – which introduces a new fixed-rate method. The options that taxpayers now have for calculating work from home expenses claims are:
1. Actual expense method
The ATO has not changed the option of claiming actual work from home expenses.
Under this method, you need to keep records of every expense incurred or depreciating asset purchased, as well as evidence to show the work-related use of the expenses or depreciating asset.
This has never been a popular method considering the level of detail the ATO expects, particularly when calculating the work-related use component. For example, the ATO suggests that for claiming electricity expenses, you need to find out the cost per unit of power used, the average amount of units used per hour (power consumption per kilowatt hour for each appliance) and the number of hours the appliance used for work-related purposes to calculate their claim. This is a lot of record-keeping for what is usually a small deduction.
2. Fixed-rate method
The original fixed-rate method allowed you to simply claim 52 cents-per-hour worked from home, without any records of expenses incurred. The only requirement was that you needed to keep a record of how many hours you worked from home. If your hours worked from home were consistent, you would only need to keep a record for 4 weeks. That would represent the whole year.
The simple rate was intended to represent lighting, heating, cooling, cleaning and the decline in value of depreciating assets in the home office. You could still claim separately for internet, phone, stationery and computer consumable expenses while also claiming the fixed rate.
The ‘revised fixed-rate method’ increases the claim to 67 cents-per-hour. However, this rate now includes internet, phone, stationery and computer consumables. Therefore, you can’t claim them in addition to your home office fixed-rate deduction. Cleaning and depreciation on office furniture are no longer included. Therefore, you can now claim them separately.
Under this new method, the ATO has now changed its record-keeping requirements. For the 2023 financial year: you need to:
- keep a record that is representative of the total number of hours worked from home between 1 July 2022 and 28 February 2023; and
- from 1 March 2023, keep a record of all actual hours worked from home.
A representative period annualised for the year will no longer be accepted from 1 March 2023.
The requirement to keep a record of all actual hours will continue for the 2024 financial year onwards. These records should be kept in real-time and not reconstructed after year-end. The ATO will accept a record in any form but they suggest:
- logs of time spent accessing systems
- time-tracking apps
- a diary
You will now need to provide at least one document for each type of expense to show that you actually incurred the expense. For example, if you receive electricity bills quarterly, you will need to keep one of those quarterly bills as a record to represent that year’s electricity expenses.
If you are intending to claim WFH expenses from 1 March 2023, we suggest that you start keeping records of time spent working at home to make sure your claim is not denied by the ATO.
Disclaimer: This information is general in nature and should not be relied on as advice. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs and seek professional advice before making any decisions based on this information.