Update: Shortcut method for work-from-home deductions

The Australian Tax Office (ATO) has now finalised its guidance on the area of claiming work-from-home deductions going forward with the release of PCG 2023/1.

The ATO’s shortcut method for calculating work-from-home expenses, which was introduced during the pandemic, ended on June 30, 2022, prompting warnings for individuals to maintain detailed records ahead of next financial year.

The revised fixed-rate method will offer taxpayers the ability to claim 67 cents per hour worked from home, up from the previous 52 cents per hour rate.

Previously, taxpayers claiming work-from-home expenses used the 80-cent shortcut method that incorporated all deductions such as heating, energy bills, depreciation, and mobile phone use into one simple cents-per-hour rate.

For the 2022-23 financial year, taxpayers will have to use either the fixed rate method or the actual cost method to claim any work-from-home expenses.

The fixed rate method requires individuals to keep records of all hours worked at home, receipts for all depreciating assets or equipment used when working at home, and records of personal and work-related use of assets.

This allows individuals to claim a rate of 67 cents for each hour worked from home, and includes additional expenses for the decline in value of home office furniture; electricity and gas for heating, cooling and lighting; and cleaning of the home office.

The actual cost method applies to individuals who incur additional running expenses as a result of working from home. Records must be kept that show evidence of what was spent on expenses and depreciating assets, and the work-related use for expenses and depreciating assets. A calculation is then made based on the percentage of use in accordance with the expense.

The importance of maintaining detailed records

The revised ATO measure means that individuals must keep detailed records of their hours worked from home, as well as related expenses incurred.

Estimates of the entire income year or the number of hours worked from home will not be accepted. As such, a day-by-day or hour-by-hour record must be documented.

Evidence of additional expenses, such as invoices and receipts, must also be kept for the next annual tax return which is a new requirement. Additional expenses include:

• energy expenses (electricity and/or gas) for lighting, heating/cooling and electronic items used while working from home
• internet expenses
• mobile and/or home telephone expenses, and
• stationery and computer consumables.

It’s important for individuals to maintain detailed records of expenses incurred when working from home, so when it comes to lodging tax returns for the 2022-23 financial year they have a choice as to which deduction option is most appropriate for their circumstances.

When do the new arrangements apply?

If you plan to use the fixed rate method for the 2022-2023 financial year, you need to ensure that you keep the following records:

• From July 1, 2022 to February 28, 2023: a record which is representative of the hours you work from home such as a diary of a representative four-week period during those months.
• From March 1, 2023 onwards: a record of the total number of hours worked from home using a timesheet, roster or diary, as well as the evidence of expenses as explained earlier.

Does this change impact you? Speak to the tax experts

If you are someone who has shifted to regularly working from home and will need to claim deductions in the next tax year, it’s important to understand the rules.

If you’d like guidance in preparing for the next tax year and understanding the requirements for record keeping, LDB Group can advise.

Give us a call on (03) 9875 2900 or send us a note via the contact form below.

Editor’s note: This article was originally published on December 6, 2022 but has since been updated to include new information.