ATO changes working from home tax deduction rules: expert commentary
ADJUSTING to the ‘new normal’ of conducting business while emerging from the worst of the COVID pandemic has been thrown another curve ball by the Australian Taxation Office (ATO) changes to working from home (WFH) taxation methods.
At the height of the pandemic, the ATO incorporated an increase in the home office deduction from 52c to 80c per hour on WFH expenses. Now the ATO has announced it has changed that figure to 67c per hour – but taxation specialists have criticised the newly introduced challenges in using the method.
BlueRock tax advisor in accounting, Eylem Mustafoff said claiming WFH tax deductions has now become a burden “and unfortunately, not many have seemed to notice except for accountants”.
“Under the new method, indicative estimates won’t cut it,” Ms Mustafoff said.
“With record keeping requirements beefed up, Australians will now have the burden of tracking every hour and every expense, which makes it less attractive to suck up the lower rate of 67 cents per hour.”
As of March 1 2023, individuals working from home will need to keep records to use the new revised fixed-rate method as it is no longer enough to keep a four week diary and use it as an estimate of yearly hours worked from home.
While the ATO has announced launching a campaign to let people know about the changes, Ms Mustafoff said she was concerned the messages were not cutting through, so she has prepared key points and tips on working from home tax deductions:
Why the WFH tax changes aren’t great for taxpayers
“First, no one wants the burden of having to keep detailed records of when they WFH and what costs they incur as a result. The big risk however is that if the ATO isn’t satisfied that your records meet the requirements, you could end up with no deduction at all. This is because if you don’t have enough records for the fixed rate method, you won't have enough records to do the actual method.
“It is advised that taxpayers maintain records of actual use even if they don't use the actual use method. Because if a claim for the revised fixed rate method comes into question – the actual method will be the only fall back.”
Record keeping requirements for WFH expenses
“Keeping track of expenses and records can be a daunting task, but it's now essential if you want to claim WFH expense deductions. From March 2023, you must keep a record of the actual number of hours worked from home, and you can't use estimates or four-week diaries during this period.
“You can no longer rely on the revised fixed-rate method if you don’t meet the record-keeping requirements or if the ATO isn’t satisfied with your records. If you lodge an objection about your work-from-home expenses, you can’t use this method and can only claim deductions based on actual expenses incurred. Therefore, it is essential to keep accurate records of your expenses to ensure you can claim the maximum tax deductions possible.”
How to keep records for WFH tax deductions
“The best way to keep account of the exact number of hours you have worked from home is by creating a timesheet. For example, the records would have to show: 21 Feb 23 – worked from home 7.5 hours; 24 Feb 23 - worked from home three hours etc.
A few quick tips for keeping track of additional costs you incur from WFH
Keep records of your cleaning expenses for your home office: Remember to track any private use by you or other household members.
Keep records of your utilities: Use the cost per unit of power from your utility bill. Find the average power consumption per hour for each appliance or light, and multiply it by the total annual hours used for work-related purposes.
Keep records of your phone, data, and internet.
Keep your itemised phone bill, keep track of your work-related calls and compare these to your total calls to determine your work-related percentage.
“When it comes to claiming work-from-home (WFH) deductions, as accountants we consider what’s best for our clients,” Ms Mustafoff said.
“Sure, the revised fixed-rate method is capped at 67 cents per hour, but is it really the way to go?
“It’s worth taking a closer look at the actual cost method, even if it means keeping more records and crunching more numbers. The potential savings could make a big difference.”