Work From Home Tax Deductions: Your Complete FY23 Guide

As the world continues to adapt to the changing landscape of work, the concept of remote work has gained popularity. In Australia, many individuals are choosing to embrace the flexibility it offers. If you are unaware, you can find all the pros and cons of working from home here. However, along with the advantages of working from home, there are also important tax considerations to be aware of. The Australian Taxation Office (ATO) has specific guidelines for claiming deductions related to working from home expenses. In this article, we will delve into the details of work from home tax in Australia, providing an in-depth understanding of how to claim deductions accurately and appropriately.

Eligibility for Claiming Work from Home Expenses

To be eligible for claiming work from home expenses, you must meet certain criteria as stipulated by the ATO. Generally, you can claim deductions for home office expenses if:

  • You are an employee – If you work from home or if it is a part of your employment arrangement, you may be eligible to claim deductions.
  • Your home office is used exclusively for work purposes – The area you are claiming as a home office should be used solely for work-related activities and not for personal use.
  • You have incurred the expenses yourself – You can only claim deductions for expenses that you have paid out of your pocket and have not been reimbursed by your employer.

Types of Deductible Work from Home Expenses

The ATO allows employees to claim a range of expenses associated with working from home. These expenses fall into two categories: running expenses and occupancy expenses.

Running Expenses

Running expenses are essential costs that arise from the daily operation of your home office. These expenses encompass various aspects, and you have the opportunity to claim a portion of them. Here are the specific running expenses you can consider claiming:

  • Electricity and Gas: You have the option to claim a portion of your electricity and gas bills. The claimable amount is determined by calculating the proportion of the floor area within your home office that is utilised for work purposes.
  • Heating, Cooling, and Air Conditioning: Similarly to electricity and gas, you can claim a percentage of these expenses. This claimable portion is also based on the proportion of your home office’s area dedicated to work.
  • Phone and Internet: If you employ your personal phone and internet for work-related tasks, you can also claim a portion of the expenses incurred. This allows you to offset some of the costs associated with these essential communication tools.
  • Office Supplies: You have the opportunity to claim expenses for office supplies such as stationery and printer ink.
  • Depreciation of Office Equipment: You can claim the decline in value (depreciation) of office equipment. This includes things such as chairs, desks, monitors, and laptops.

Occupancy Expenses

Occupancy expenses are related to the ownership or rental of your home and can be claimed in limited circumstances. These expenses include:

  • Mortgage Interest or Rent: If you own your home, you may be eligible to claim a percentage of your mortgage interest. For renters, a portion of the rent can be claimed.
  • Property Insurance: You can claim a portion of your home insurance premium if you use your home for work.
  • Council Rates: You can claim a portion of your council rates based on the proportion of your home used for work.

In order to claim occupancy expenses when working from home, you must actively establish the following:

  • The necessity of working from home due to your employer’s failure to provide an alternative work location.
  • The exclusive or near-exclusive use of a specific area in your home for work purposes, which cannot readily serve any other function.
work from home tax

Methods for Calculating Work From Home Tax Deductions

The ATO provides two methods for calculating work from home expenses: the fixed rate method and the actual expenses method. It is essential to choose the method that suits your situation best, ensuring that you accurately calculate your deductions.

There have been significant changes to work from home tax deductions in the last year. Notably, the previous fixed rate method of $0.52 per hour will no longer be available for use in the 2022-23 tax year. Furthermore, the shortcut method of $0.80 per hour has also been discontinued and cannot be used for deductions in 2022-23.

Fixed Rate Method

A new fixed rate of $0.67 per hour has been introduced for calculating tax deductions. This method brings about significant changes to the expenses that can be claimed and imposes additional record-keeping requirements. Notably, the previous fixed rate method of $0.52 per hour will no longer be available for use in the 2022-23 tax year. Furthermore, the shortcut method of $0.80 per hour has also been discontinued and cannot be used for deductions in 2022-23.

How Does the Fixed Rate Method Work?

The revised fixed rate method offers a deduction of $0.67 per hour worked from home. This rate covers various expenses, including:

  • Data and internet
  • Mobile and home phone usage
  • Electricity and gas
  • Computer consumables, such as printer ink
  • Stationery

Limitations of the Fixed Rate Method

It’s important to note that you cannot claim a separate deduction for any expenses included in the revised fixed rate method. However, you can claim a separate deduction for the following:

  • The decline in value of assets used while working from home, such as technology and office furniture, including any repairs and maintenance.
  • Other working expenses incurred as a result of working from home are not covered by the rate per hour.

Record Keeping For Fixed Rate Method

To claim work from home expenses using the revised fixed rate method, you must maintain the following records:

  • A record of all the hours worked from home throughout the year, including timesheets, rosters, or a diary. Please note that a transitional timekeeping arrangement is available for the 2022-23 tax year.
  • Evidence of payment for the expenses covered by the revised fixed rate method. For example, if you use your phone and electricity while working from home, keep a bill for each of these expenses.

Actual Cost Method

The actual cost method is a more complicated approach to work from home deductions. It involves tracking and documenting the actual costs associated with using a home office for work purposes.

What Can You Claim?

Under the Actual Cost Method, you have the ability to claim a portion of expenses that pertain to the work area, such as electricity, heating, cooling, and cleaning costs. Additionally, you can claim expenses related to phone and internet usage, computer consumables (printer ink), and the depreciation of home office equipment. It is crucial to note that you can only claim the proportion of these expenses that directly relate to work. For instance, if a home office is utilised 50% of the time for work purposes, you can claim only 50% of the expenses.

How Does The Actual Cost Method Work

The first step in calculating deductions under the Actual Cost Method is to identify the relevant expenses you have accumulated while working from home. You then calculate the proportion of your home used for work-related purposes and claim that proportion against your costs. For example, if your total expenses amount to $3,000 and the home office is used 70% of the time for work, the deductible amount would be $2,100 ($3,000 x 70%). These deductions can be claimed in the individual tax return as part of work-related deductions.

Record Keeping For The Actual Cost Method

Maintaining accurate records is crucial for you to maximise your deductions under the Actual Cost Method. You must keep detailed records of all home office expenses, including invoices, receipts, and other relevant documentation. Accurate time records can also assist in determining the proportion of home office use for work-related activities, such as timesheets.

Limitations of the Fixed Rate Method

As mentioned above, the Actual Cost Method is very complicated and it is often easier to use the Fixed Rate Method. The actual cost method requires individuals to maintain thorough records and documentation of their home office expenses.

Determining the exact portion of expenses that can be attributed to the home office can also be challenging. It often involves complex calculations and subjective judgments, especially when multiple areas of the home serve both personal and business purposes.

Work From Home Tax Deduction Tools and Resources

Not sure how to go about lodging your tax return? Use these tax tools and further resources to find out:

DISCLAIMER: The information provided in this article on work from home tax deductions in Australia is for general informational purposes only and should not be considered as legal, financial, or tax advice. Tax laws are subject to change, and individual circumstances may vary. For personalised advice and the most up-to-date guidelines, consult with a qualified tax professional or refer to the Australian Taxation Office (ATO).