The last few years have meant a changing landscape to how people work. Some work entirely from home, while others work a hybrid of office and home. Naturally, this leads to extra costs that can be claimed as tax deductions when it comes time to lodge your tax return.
Short cut method
During the pandemic, the government brought in a short cut method of claiming working from home deductions where a fixed rate of 80 cents per hour was calculated which covered all expenses. No other costs could be claimed. This method could only be used between 1 March 2020 and 30 June 2022 only and can’t be used past this date.
Two methods of claiming
Now that 30 June 2022 has passed, two methods for claiming working from home costs can only be used. These are:
- Fixed Rate
- Actual Costs
Revised Fixed Rate Method – 1 July 2022 onward
The revised fixed rate method lets you claim certain expenses using a fixed rate of 67 cents per hour for each hour you work from home during the income year.
The expenses covered by the 67c per hour rate include things like your energy expenses for lighting, heating/cooling and electronic items you use while working from home, internet and data expenses, mobile and home telephone expenses, and computer consumables like printer ink and stationery.
But here’s the catch: if you claim the 67c per hour rate, you can’t claim an additional separate deduction for any of these expenses. So, for example, if you use your mobile phone both for work from home and work done elsewhere, your total deduction for mobile phone expenses for the year will be covered by the hourly rate of 67c per hour multiplied by the hours worked from home that year.
You’ll still be able to claim the actual depreciation deduction for depreciating assets used while working from home as a separate expense. This includes items like your computer, iPad or other electronic devices, desk, office chair and furniture. Items that cost $300 or less can be claimed outright rather than depreciated over a number of years. You can also claim any repairs or maintenance of these assets.
You don’t need a dedicated workspace in your home to use this method, such as a spare room or study. You can claim if you work from your dining table or other shared spaces in the house. If there are multiple people in your household who are also working from home and incurring additional running expenses of the kind outlined above, they can also claim. You don’t have to incur every single one of the listed running expenses in order to make a claim.
If there are any additional expenses incurred, like internet or phone bills over and above your portion of the electricity bill, you can claim those too. You’ll need to have evidence or records of the expenses you’ve paid for.
If you’re paying board or rent to live in the dwelling, that won’t count as a contribution towards your expenses like electricity and internet.
So, to calculate your total deduction for running expenses using the revised fixed-rate method, you need to follow these steps:
(a) keep a record of the number of hours you worked from home during the year (using a 4-week Representative Diary for any period between 1 July 2022 to 28 Feb 2023 plus full daily records or roster from 1 Mar 2023 onwards)
(b) multiply the total number of hours you worked from home by 67c per hour
(c) calculate the decline in value of any equipment you used for work, like your computer or office chair
(d) add up the amounts you calculated in (b) and (c), and that’s the amount you can claim as a deduction on your income tax return.
Example 1 – using the practical compliance approach
Gerry is a bookkeeper who works from home 2 days a week. When he works from home, he uses his employer-provided laptop, his home internet connection, and his personal mobile phone. He also uses the light and air conditioning or ceiling fan in the room where he works. His employer reimbursed the cost of the chair and desk that he uses.
Since Gerry uses his employer-provided laptop, he can’t claim a deduction for its decline in value. Also, he can’t claim a depreciation deduction for the chair and desk he uses at home.
But, during the income year, Gerry kept all the necessary records. He worked from home for 768 hours during the year. So, he decides to use the revised fixed-rate method to calculate his working from home expenses.
He calculates his deduction by multiplying the total number of hours he worked from home by the hourly rate of 67c, which comes to $514.18. Since Gerry isn’t entitled to a decline in value deduction for any of the depreciating assets he uses at home, no additional amount is added to the hourly rate.
Finally, when Gerry files his tax return for the income year, he claims a deduction of $514 for his working from home expenses.
Example 2 – cannot rely on the practical compliance approach
Dan is a financial adviser who works in the office at least three days a week and can work from home for the remaining two days, but only if he doesn’t have client meetings. Dan claimed a deduction of $815 for his working from home expenses in his tax return for the 2022-23 income year. However, in February 2024, his claim was reviewed by the Australian Taxation Office (ATO) and Dan was asked to provide evidence to substantiate his claim.
Dan estimated that he worked from home for 2 days each week for around 8 hours a day and took 3 weeks’ leave during the year. He provided a document showing his calculation of 784 hours worked from home and a purchase receipt for his office chair, which cost him $290. But, he did not provide any evidence of the running expenses he claimed, such as electricity, internet, and mobile phone bills.
The ATO asked Dan to provide evidence of the actual hours worked from home and the running expenses he claimed, but he couldn’t provide any records. However, he was able to provide one of his credit card statements and a mobile phone and internet bill, but he couldn’t find any of his electricity bills.
Since Dan was unable to substantiate his claim using the fixed-rate method, the ATO informed him that he can claim the actual expenses he incurred as a result of working from home. Based on the evidence Dan provided, his only deduction will be for his office chair which cost him less than $300 and was only used for work purposes. As a result, Dan’s deduction for working from home expenses was reduced from $815 to $290.
Example 3 – incurring additional running expenses
Pierre is a plumber and when he finishes work each day, he goes home and does some administrative tasks for his business. This includes sending invoices to clients, making calls, ordering parts, checking his bank account, and sending payment reminders to clients who are overdue. To do this, he uses his computer, his home internet connection, and his mobile phone. Since Pierre’s mobile phone bill is in his name, he has to pay for it himself.
His partner’s name is on the electricity bills, and both his and his partner’s name are on the internet bill. Even though they pay all their household bills from a joint bank account, Pierre can still claim these expenses because he uses them for his business. If Pierre has kept a diary for at least 4 weeks anytime between July and February 2023, where he recorded the hours he spent working from home, he can claim a tax deduction of 67 cents per hour. He also needs to keep a record of all his hours worked from home between 1 March 2023 and 30 June 2023 to claim this deduction.
Example 4 – not incurring additional running expenses
Sergei works as a graphic design artist at his office for two days a week, and from his bedroom at his parents’ place for the rest of the week. Sergei uses his employer-provided laptop and mobile phone to do his work, but he doesn’t have to pay rent or contribute to the household bills. Although he’s working from home, he’s not actually incurring any extra expenses, so he won’t be able to claim any additional running expenses as a tax deduction.
If you’re working from home for the 2023-24 and future income years, you need to keep track of the number of hours you’re working from home throughout the entire year. You can’t just estimate the number of hours or base it on a particular period and apply it to the rest of the year. You can keep a record of your hours using timesheets, rosters, time-tracking apps, or even a diary.
When it comes to energy, mobile and home telephone, and internet expenses, you’ll need to keep a bill for one month or quarterly to claim these expenses. If the bill is not in your name, you’ll need to provide additional evidence to show that you incurred these expenses. For instance, if you share a property with others and don’t have a bill in your name, you could use a joint credit card statement showing payment or a lease agreement.
For stationery and computer consumables, you only need to keep one receipt for an item purchased. But if you don’t keep evidence of the total hours worked from home and the running expenses you incurred, you won’t be able to claim them as a deduction.
If you’re using a depreciating asset (like a laptop or printer) to carry out your employment duties, you need to keep receipts for up to 5 years after claiming the last depreciation expense. If the receipt doesn’t specify the nature of the asset, you can write in the missing details yourself before you lodge your income tax return. You also need to keep records showing your work-related use of the depreciating asset. You can use a representative 4-week period to demonstrate your personal and income-producing use of the asset.
Example 5 – employee who meets requirements and uses revised fixed-rate method
Piruntha started working from home a few months ago after her employer instructed her to split her time between the office and her house. To set up her home office, she bought a laptop, desk, office chair, and some stationery. She also uses her personal internet and phone, and the lights and air conditioning in her home office while working from home.
To claim her additional running expenses for working from home, Piruntha kept records of the time spent working at home, as well as her electricity, gas, mobile phone, and internet bills. She also worked out the private and work-related use of her desk, office chair, and laptop, and calculated their depreciation deduction using the diminishing value method.
Piruntha met all the criteria to claim a deduction for her working from home expenses and chose to use the revised fixed-rate method to calculate her deduction. Her total deduction came out to be $1,510, which she included in her tax return.
Even though Piruntha also used her personal phone for work while at the office, she couldn’t claim any additional deduction for it as it was already included in the fixed-rate calculation.
Pro Tax Tip: Cleaning expenses may also be claimed under this method as a separate deduction but only if you have a dedicated home office or study.
Actual Cost Method
If you want to claim actual costs for working from home, you need to keep track of the expenses you incurred as a result of working from home, keep detailed records of the hours you worked for the entire year, and show your expenses and the costs of depreciating assets. Also, you must have a dedicated area in your home for work, like a study or spare room.
With this method, you can work out your tax deductions by calculating the actual expenses you incurred while earning your income. You can claim things like the decline in value of depreciating assets such as home office furniture, phones, computers, laptops, or similar devices. If items cost $300 or less, you can claim them outright instead of depreciating them.
Other things you can claim are cleaning expenses if you use a dedicated area for working, heating, cooling, and lighting expenses like electricity and gas, home and mobile phone, data, and internet expenses, computer consumables like printer ink, and stationery. If you incur running expenses for both private and work purposes, you need to apportion your deduction and only claim the work-related portion.
If you’re looking to claim a deduction for the depreciation of your home office furniture and equipment, there are a few things you need to keep in mind. You’ll need to keep receipts showing how much you spent on these assets. You’ll also need to be able to show how you calculated the work percentage over the entire income year.
Now, let’s talk about cleaning expenses. If you have a room set up as a home office, you can add together your receipts for cleaning expenses and then multiply by the floor area of your dedicated work area. Then, divide this by the whole floor area of the house. This will give you a good idea of the percentage of your cleaning expenses that relate to your home office. However, make sure to reduce this amount by the percentage of private use by yourself and the use of the home office by other household members.
When it comes to working out the cost of your heating, cooling and lighting, you’ll need to use a few different pieces of information. Check your utility bill to find out the cost per unit of power used. Then, figure out the average units used per hour for each appliance, equipment, or light you use. Finally, tally up the total annual hours used for work-related purposes by checking your record of hours worked from a work roster, timesheets, or your diary.
Example 1 – electricity for cooling and heating
Ben works from home for several days every week and keeps a record of the total hours he works from home. In 2022-23, he worked for a total of 768 hours from home.
When Ben works from home, he sits in a separate room of his house and always uses the air conditioner in the room. His air conditioning unit is a small one with a capacity of 3.5 kilowatt (kw). According to the unit’s energy efficiency rating, it costs Ben about 1.09 kw per hour to run.
Based on his electricity bills, Ben pays around 27.81 cents per kilowatt hour for electricity. So, Ben calculates that the cost of cooling and heating the room he uses when he is working from home is around 30.31 cents per kw hour. Multiplying this by the 768 hours he worked from home, he gets a total of $233 (rounded up to the nearest whole dollar).
Phone, data and internet
If you have an itemized phone bill, you’ll need to work out your work-related use over a continuous 4-week period. To calculate the work-related proportion for home telephone expenses, you can use a formula that takes into account the number of work calls compared to total calls. For mobile phone expenses, you can consider several factors, such as the number of work calls compared to private calls, time used for work calls, and employer requirements for work use of the mobile phone. You can also use the time or data basis to calculate device data usage expenses.
If you’re using the $50 method, you don’t need to keep detailed written evidence, but you should keep basic records to show how you arrived at your claim. For a home phone, you can use a rate of 25 cents per work call. For mobile phones, you can use a rate of 75 cents per work-related call and 10 cents per work-related text message. For device data usage, you can base your claim on the time spent or data used for work purposes compared to all other usage by you and other users.
Example 2 – internet expenses – sole user
Dan needs to work out how much of his internet usage is for work purposes so he can claim it as a tax deduction. He tracked his work-related internet usage over a four-week period and found that he used it for 96 hours. However, he also uses the internet for personal purposes on his gaming console, smart TV, and mobile phone.
He estimates that he uses the internet for these personal devices for 4 hours each weekday and 16 hours on the weekend, which adds up to 144 hours over a four-week period. This means that Dan uses the internet for a total of 240 hours in four weeks, with 40% of that time being work-related. Based on this calculation, Dan can claim $264.00 as a tax deduction for his internet expenses.
Example 3 – internet expenses – apportion for other users
Let’s continue from the last example. Now let’s assume that Dan’s wife also uses the internet for a similar amount of time, which is 144 hours over a four-week period. This means that the internet is being used for a total of 384 hours in a four-week period. Out of this, only 96 hours, which is 25%, is related to Dan’s work.
So, Dan’s work-related portion is lower now due to the shared usage of the internet. Using the same calculation method as before, we can determine that 25% of Dan’s monthly internet expenses, which is $60, is equal to $165. This can be claimed as a tax deduction for 11 months, taking into account Dan’s four weeks of annual leave.
To make sure that work-related expenses are properly matched to specific costs, you might need to split the cost of bundled components. Here are three ways you can do this:
- Use the supplier’s breakdown of the bundled components’ relative costs to apportion the cost.
- Apportion the cost based on the relative costs of the bundled components as if they were bought separately from the same supplier.
- If there’s no information available on the supplier’s breakdown of costs or unbundled costs, you can use information from a comparable supplier to apportion the cost.
When expenses are bundled together, it can be more complicated to figure out the exact cost of each component.
Example 4 – bundled expenses
Let’s say you have an internet service provider that offers an internet and home phone service for $100 a month. If you were to get these services separately (unbundled) from the same provider, it would cost you $80 for the internet and $40 for the home phone, which adds up to $120 a month. This means that the discount you’re getting for the bundle is 16% ($20 divided by $120). It’s reasonable to assume that this bundle discount applies to each individual component cost. So, if the home phone service would normally cost $40 a month when unbundled, the bundled phone service can be estimated to cost $40 minus (40 times 16%), which is $33.60.
Now, let’s say you use the internet privately but use the home phone service 50% of the time for work-related purposes. In this case, you can deduct $16.80, which is the cost of the internet ($0) plus 50% of the cost of the bundled phone service ($33.60).
Stationery and computer consumables
To claim computer consumables and stationery as a tax deduction, make sure you keep receipts for the items you buy. Remember, you can only claim the portion of the expense that relates to your work.
If there are multiple taxpayers working in the same household at the same time, they can choose whether to use the Revised Fixed Rate or Actual Expenses Method to calculate their expenses.
ITP accountants crunch numbers. They’ll work out the best method to use that will maximise your tax return. If you’d like to chat about the revised fixed rate method and how it will affect you, call 1800 367 487 and chat with a friendly professional today.