Prior to 1 July 2022, Australian taxpayers had three methods to calculate deductions for expenses incurred while working from home.
- Shortcut method
- Fixed-Rate Method
- Actual Cost Method
Proposed changes from 1 July 2022:
The Australian Taxation Office (ATO) introduced a revised fixed-rate method through Practical Compliance Guidelines 2023/1. This method allows taxpayers to claim a rate of 67 cents per hour for specific expenses that are difficult to apportion, such as electricity and internet expenses. The rate per hour has increased, but there are changes in the running cost included and additional record-keeping requirements.
From 01 July 2022 onwards, taxpayers can only use the revised fixed-rate method or claim actual expenses. The temporary method of 80 cents per hour is no longer available.
To be eligible to use the revised fixed-rate method, taxpayers must meet the following criteria:
- Working from home: Taxpayers must be performing their employment duties or conducting their business from home on or after 1 July 2022. The work should be substantive and directly related to income-producing activities.\
- Incurring deductible additional running expenses: taxpayers must incur additional running expenses listed in the guidelines, which are deductible under section 8-1 of the ITAA 19997, as a result of working from home. This does not require a comparative exercise but can be demonstrated by the number of hours worked from home. Reimbursement from a third party, like an employer does not satisfy this requirement.
- Taxpayers using fixed- rate method cannot claim a separate deduction for expenses covered by the rate but can claim separate deductions for the other expenses not covered by the rate, according to the relevant rules.
Taxpayers must also keep relevant records, including the total number of hours worked from home during the income year and documentation for each listed running expense incurred.
