What’s the Deal with Working from Home?

As a result of the COVID-19 pandemic, many Australians have transitioned to working from home in order to maintain social distance and adhere to government regulations. Working in a remote setting provides flexibility and ensures a safer work environment, but now many employees are faced with the challenge of calculating their home office expenses and determining whether they are eligible for tax deductions. If you’re working remotely as an employee, there are certain expenses that you can claim as tax deductions. In this article, we will explore the standards, regulations, and methods pertaining to claiming work-from-home expenses, enabling you to maximize your deductions.

The new ‘Fixed Rate’ method

The Australian Taxation Office (ATO) has updated its approach to how you claim expenses for working from home

The Australian Tax Authority (ATO) has recently updated the method for claiming deductions on work-from-home expenses. Starting from July 1, 2022, you have the option to utilize the new “fixed rate” method of 67 cents per hour or the “actual cost” method, depending on which one is more beneficial for your situation.

To claim a deduction, there must be a clear connection between the costs incurred and your income-generating activities. If an expense does not relate to your work or only partially relates to it, you cannot claim the full cost. Another crucial aspect is that you must incur costs related to working from home.
For instance, if you live with your parents and do not contribute to household expenses, you cannot claim work-from-home deductions, even if you pay room & board (since the ATO considers this a private agreement).

To calculate your work-from-home expenses, you’ll need to keep a record of all the expenses you’ve incurred from working remotely. This might include expenses such as:

• Heating, cooling, and lighting bills.
• Phone (mobile and/or landline) and internet expenses.
• Costs of cleaning your home working area (including cleaning products or payment for a domestic cleaner if required).
• Depreciation of home office furniture and fittings.
• Depreciation of office equipment and computers.
• Costs of repairing home office equipment, furniture, and furnishings.
• Small capital items such as furniture and computer equipment costing less than $300 can be written off in full immediately (they don’t need to be depreciated).
• Computer consumables (like printer ink) and stationery.

What proof does the ATO need to prove I am working from home?

The ATO requires proof that you are working from home if you plan to use the fixed rate method for claiming deductions. This means keeping a record of all the hours you worked from home, including weekends and outside of standard office hours.
To claim deductions for running costs covered by the fixed rate method, keep copies of bills, invoices, or credit card statements. It’s important to keep these records for at least five years and make sure that electronic diaries can be accessed over time. By keeping accurate records, you can maximize your deductions and avoid having your claims denied.

The ‘Actual’ Method

The actual method approach allows you to request reimbursement for any supplementary expenditures you may have while operating from your residence. It is imperative to maintain accurate records of these expenses and their work-related percentage. These costs may include depreciation of assets, energy consumption, phone and internet bills, office supplies, and computer consumables, as well as the costs of cleaning your workspace. Nevertheless, the Australian Taxation Office (ATO) scrutinizes these expenses to confirm that they are exclusively associated with your job. Unless your home is a place of business, personal expenses or occupancy costs cannot be claimed.

What if I am running a business from home?

If your residence doubles as your primary place of work and you have a designated area solely for business-related activities, you have the potential to claim deductions for a reasonable portion of your occupancy expenses and operating costs. An example of this scenario could be a doctor who runs their clinic from their home. In this case, the doctor may have allocated one-third of their home space to serve as a workspace for seeing patients.

It is crucial to bear in mind that if you eventually sell your home, Capital Gains Tax (CGT) may be applicable. Although your principal place of residence is usually exempt from CGT, the portion of the home utilized as a business space will not typically qualify for the main residence exemption during the period it was in use for business purposes. However, you may be eligible for small business CGT concessions and general CGT discounts to reduce any resulting capital gains.

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