Gary Anders | March 2023
This article was current at the time of publication.
Taxpayers claiming working from home expenses will need to use a revised 67 cents-per-hour fixed rate deduction method unless they choose to separately claim the costs.
The revised fixed rate – which comes with other changes – has been finalised by the Australian Taxation Office (ATO) in its practical compliance guideline PCG 2023/1 Claiming a deduction for additional running expenses incurred while working from home – ATO compliance approach.
The previous 52 cents hourly rate enabled taxpayers to separately deduct the work-related portion of their phone, data, and internet expenses and depreciation of work equipment (other than furniture), stationery costs and computer consumables.
Now, the 67 cents rate covers expenses incurred “on a fair and reasonable basis” while working from home, including for energy, internet, mobile phone, and home telephone usage, as well as stationery and computer consumables.
In a submission to the ATO in December 2022, CPA Australia noted that its members preferred the 52 cents rate method because it enabled work-related internet, phone, and some other costs to be claimed separately.
“The general view is that their clients will be worse off in terms of what they could claim under the revised 67 cents method,” CPA Australia stated.
“It is expected that many of their clients are likely to use the actual cost method in calculating their work-related expenses going forward instead.”
Detailed record-keeping requirements
In its guidance, the ATO says taxpayers claiming working from home expenses for the 2022-23 income year must keep a representative record of the total number of hours worked from home between 1 July 2022 and 28 February 2023.
They must also use timesheets, rosters or a daily diary to log actual hours worked from home between 1 March 2023 and 30 June 2023. In addition, bills and receipts must be kept for all claimed expenses.
For the 2023-24 and subsequent income years, taxpayers need to keep records for the entire number of hours worked from home, as well as bills and receipts.
Since the relaxation of rules around public interaction during the COVID-19 pandemic, millions of workers across Australia have been transitioned by employers to permanent hybrid working models that enable them to work from home for one or sometimes several days a week.
“Employees on hybrid work arrangements are left with the choice of using the actual method or the revised fixed rate method,” says Daren Yeoh CPA, Partner and Director at SW Accountants & Advisors.
“The actual method will require detailed paperwork and involve time-consuming calculations, including apportioning between private and work-related expenses. It also comes with a greater risk of being challenged by the ATO.
“Responding to and justifying claims to the ATO may entail additional costs to the employee where external advisers are engaged.”
Yeoh says while the actual method could yield greater deductions, employees may still opt for the revised fixed rate method to simplify their working from home expense calculations and reduce the risk of claims being challenged.
However, he warns it could also reduce working from home deductions.
“Anecdotally, this could be to the tune of hundreds of dollars in reduced working from home expense deductions,” he says.
“Despite the increase in the rate per hour, the change will reduce the available working from home expenses to employees if the revised fixed rate method is used.”
Yeoh notes that to maximise deductions, taxpayers will need to identify those not covered by the revised fixed rate method and instead claim separate deductions. This will generally be limited to a depreciation of work equipment purchased by the employee and not reimbursed by the employer.
How tax practitioners should advise clients
Considering the new ATO guidance, tax practitioners should remind all clients – especially those claiming working from home expenses – to keep meticulous records throughout income years.
This includes maintaining detailed time records of hours worked from home and the importance of retaining invoices and receipts.
“Failure to retain proper records could invalidate the use of the fixed rate method and result in deductions being denied by the ATO,” Yeoh says.
“Also, the costs and benefits of the actual method versus the fixed rate method should be explained to the individual.
“It might be helpful for practitioners to quickly model the impact of the change on the working from home expense deductions available to the employee based on the taxpayer’s prior year income tax return.”
This, he maintains, will help inform the choice of whether to use the actual method or the revised fixed rate method.
The ATO explains changes to working from home deductions
Want to know more about the nuts and bolts of WFH changes? Listen to this lively discussion between ATO Deputy Commissioner Tim Loh and CPA Australia’s Senior Manager Tax Policy Elinor Kasapidis.
Members in Malaysia may study a local taxation subject offered by Sunway TES and Universiti Tun Abdul Razak.
Members in Fiji may study a local taxation subject offered by the University of the South Pacific (USP)
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