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What’s The Deal With Working From Home?

Do you work from home? If so, keep reading to see how the ATO has changed the way you are now able to claim deductions and expenses.

The past few years have seen a dramatic increase in businesses allowing their employees more flexibility when it comes to remote working. To accommodate this, the ATO has initiated new updates which have come into effect starting from the 1st of July 2022.

There are two options to select from when deciding the best way to claim. One method is the ‘Fixed rate’ which offers 67 cents/hour. The second option is the ‘actual cost’.  The ATO recommends that you research and decide which option is more beneficial for your individual situation. 

To be eligible to make a claim, you are required to collate and record all of the relevant information, and have it ready to be processed when lodging your tax returns.

As per the ATO rules, the only way for a deduction to be applicable is if there is a direct connection linking the costs incurred and the manner in which the income is earned.

The expense must be fully related to your work, otherwise it will not be eligible. The ATO is very strict on this policy and will not accept claims on expenses that only partially relate to your work.

Another point to keep in mind is that this only applies to those individuals who are renting or own the property where this is taking place. If you are living with your family, you are not eligible to claim, even if you are contributing money as a board. This is because you are not directly responsible for incurring the expenses.

Here is a breakdown of the updated claiming system:

The ATO has revised the two fixed rate methods that were used in the past, and now there is only one updated method in place from the 1st of July 2022. Anyone who works from home can use it to claim, regardless of whether they have a designated office in their home, or they work anywhere else in the house.

What is the new method?

Option 1. 

A rate of 67 cents per hour is claimable for costs incurred; some examples include telephone and internet bills, computer consumables, and gas and electricity.  If you are interested in claiming the cost of the decline in value of assets such as tech items (including maintenance and repairs) you can do so in a separate claim.

Option 2.

Alternatively, you may prefer the ‘actual method’. This generally improves your outcome if you have more expenses than the average taxpayer. It allows you to claim the expenses that you actually incur. This means that you would calculate the percentage of expenses that are used for the work you do from home, including but not limited to:

  • Depreciating assets such as office equipment, technology, and furniture
  • Energy bills such as air conditioning
  • Telephone and Wi-Fi costs.

The ATO will be scrutinizing the details you provide with this method to ensure everything is compliant. You will need to be careful when claiming as not everything is eligible. For example, kitchen and bathroom supplies are not included as these are considered personal items. Unless your home is your place of business, you are not able to claim any costs such as rent or property insurance. 

What if my home is my principal place of business?

While it is rare for a home to also be the principal place of business, in some circumstances this happens when an individual has set aside a certain area of the house solely for business related activities. For example, if a Doctor converts the front part of their home into an office for patients. 

If this applies to you, you may be able to claim a portion of the occupancy expenses plus running costs. Please note that you might need to pay Capital Gains Tax (CGT) if you sell the home. As the home is being claimed as a business expense, it will not be exempt from CGT, although it could be reduced by utilising the small business Capital Gains Tax concessions and general discount.

What if there are two of us working from home at the same time?

The ATO allows for multiple people to claim with this method. For example, if you have housemates and they are also working from home, they would be eligible too, as long as they are in alignment with the criteria.

Do I need to provide evidence?

Yes, you will need to ensure that every hour worked from home is recorded in detail. The ATO used to allow estimates in the past, however they have now made it clear that this way of recording will no longer be accepted. Please note that details need to be included such as out of office meetings, which indicate that you left the premises and were not ‘working from home’ at that time. 

Can I back date my record to the 1st of July 2022?

Yes, the ATO has confirmed that for the period 1st July 2022 to 28 February 2023 you can provide a total record of hours worked from home. From the 28th February onwards, each hour must be documented in detail.

Am I eligible if I work outside of business hours?

Yes, the ATO has not specified that there is a restriction on the hours included. If you work on the weekends or late at night, just be sure to document it the same as you would with the regular business hours.

How should I keep track of costs incurred from working at home?

Maintain all bills and invoices related to the costs, including bank statements and any other documentation to provide evidence for the claim. Remember that you will need to store any financial records for 5 years as proof of the claim. In the instance that a bill is addressed to more than one person and the amount is split between them, it can be allocated to each person as an expense.

Important things to remember: 

If you are unable to provide evidence to justify a claim at the time it is required, you will be immediately denied a deduction. As always, it is best to keep a back-up of any digital documentation (if that is how you keep records), or in case your physical documentation is lost.

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