Tax season in Australia has always been a time of anticipation and apprehension for many individuals. But this year, there’s more to it than just the usual paperwork and calculations. The Australian Taxation Office (ATO) has introduced significant changes to how taxpayers can claim deductions for expenses incurred while working from home. These changes, effective from 1st July 2022, have the potential to impact the deductions you can claim on your next tax return. So, let’s dive into the details and explore what these changes mean for you.
The End of the Shortcut and Old Fixed Rate Methods
Until recently, taxpayers had the convenience of using the shortcut method ($0.80 cents per hour) or the old fixed rate method ($0.52 cents per hour) to calculate deductions for their working-from-home expenses. However, starting from 1st July 2022, these methods are no longer available.
The Revised Fixed Rate Method
Replacing the old methods is the revised fixed rate method, which allows you to claim $0.67 cents per work hour. This rate covers a range of expenses that include energy (electricity and gas), phone usage (mobile and home), internet, stationery, and computer consumables. Importantly, if you opt for this method, you can’t claim additional deductions for any expenses already covered by the rate.
Phone and Internet Expenses Included
The notable change here is the inclusion of phone usage and internet expenses in the fixed rate method. Previously, these expenses were excluded from the fixed rate method, allowing for separate deductions. However, under the new rules, if you use your mobile phone or home internet for work purposes both at home and while you’re out, you can no longer claim separate deductions. To claim these expenses separately, you must use the actual cost method.
While the fixed rate method simplifies things, you can still claim certain expenses separately. These include the decline in the value of assets used for work (e.g., computers and office furniture), repairs and maintenance of these assets, and the costs associated with cleaning a dedicated home office.
No Need for a Dedicated Home Office
One of the advantages of the revised fixed rate method is that it doesn’t require you to have a dedicated home office space. Whether you work from the kitchen, living room, or a designated office, you can still claim a deduction.
Compliance and Substantiation
To ensure compliance, it’s essential to keep accurate records of all hours worked from home, starting from 1st March 2023. Before this date, a 4-week representative diary or similar document is required between 1st July 2022 and 28th February 2023. The ATO won’t accept estimates or representative diaries for periods after 1st March 2023.
Records can take various forms, such as timesheets, rosters, logs of time spent on work-related tasks, or a diary for the entire year. It’s crucial to keep records for each expense covered by the fixed rate per hour, including separate bills for items like phone and electricity.
The Actual Cost Method
The actual cost method remains unchanged. To use this method, you must have a dedicated home office. This approach allows you to claim the actual work-related portion of all running expenses. It’s more detailed and requires keeping records of receipts, bills, and other documents to prove your expenses.
We understand that these changes might raise questions about how they will affect your tax return and record-keeping requirements. At By The Numbers Accounting, we’re committed to helping you navigate the complexities of the tax system. Our Tax Experts are trained on the new rules implemented by the ATO, and we’re here to provide guidance and support.
As the ATO ushers in these changes to how Australians claim working from-home expenses, it’s essential to stay informed and adapt to the new rules. Whether you opt for the simplified fixed rate method or the more detailed actual cost method, maintaining accurate records is key. With the right approach and assistance from tax experts, you can make the most of your deductions while ensuring compliance with the latest regulations. So, take the time to assess your situation, keep meticulous records, and consult with experts when needed to make the most of your tax return in this evolving landscape.