ATO Introduces Changes to Working from Home Deductions for Australian Taxpayers
On 3 November 2022, the Tax Office announced modifications and important changes to the way taxpayers can claim deductions for expenses incurred while working from home. The changes were published under PCG 2023/1, available here, and subsequently the accompanying Compendium, available here.
The ATO stated that these alterations have been designed to better accommodate contemporary remote work arrangements.
ATO Assistant Commissioner Tim Loh explained that taxpayers can choose between two methods to claim working-from-home deductions: the “actual cost” method or the “fixed rate” method. The fixed-rate method is the only one undergoing changes.
The updated fixed rate method, which is applicable from 1 July 2022, can be used by taxpayers when calculating deductions for their 2022-23 income tax returns. Loh emphasised the importance of being eligible to claim working from home expenses, which requires taxpayers to be working from home to fulfill their employment duties and incur additional expenses as a result.
Regardless of the method chosen, Loh stressed the importance of maintaining records, as this will allow taxpayers to choose the method that provides the best deduction at tax time based on their circumstances.
The revised fixed rate, which includes difficult-to-calculate items like phone, internet, and electricity expenses, will offer benefits for those using it in 2022-23. However, assets and equipment, like technological items and office furniture, must be claimed separately. Additionally, a dedicated home office is no longer required to use the fixed rate method.
Transitional arrangements for the 2022-23 income year are in place for taxpayers who haven’t kept records thus far:
- From 1 July 2022 to 28 February 2023, the ATO will accept records representing the total number of hours worked from home (e.g., a 4-week diary).
- Starting from 1 March 2023, taxpayers will need to record the total number of hours they work from home, similar to a diary to prove the hours worked.
Loh also reminded taxpayers that they cannot claim expenses for items like coffee, tea, milk, and other general household items.
Key changes to the revised fixed rate method include an increase in the cents per work hour from 52 cents to 67 cents, a change in what’s covered by the rate, and new record-keeping requirements. The actual cost method remains unchanged.
The ATO offers online calculators to help taxpayers determine the decline in value of assets and equipment purchased and provides the myDeductions tool in the ATO app to help track expenses. Taxpayers seeking assistance or advice about claiming working-from-home expenses can consult a registered tax professional.
By Gregory Atamian JJN Associates – Accountants Tax Advisors
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