Tax Alert - Changes to working from home deductions for 2022-23
Changes to working from home deductions for 2022-23
The Australian Taxation Office (ATO) has recently finalised guidance explaining record keeping requirements and the methods for calculating working from home (WFH) deductions have changed from 1 July 2022.
From the 2022–23 income year onwards, the two methods available to calculate WFH deductions are the:
- revised fixed rate method; and
- actual cost method.
PCG 2023/1 provides taxpayers with a choice between the actual cost method and revised fixed rate method to calculate their WFH deductions from the 2022–23 income year onwards.
Different taxpayers in the same household can individually choose the method they want to use. Also, a dedicated work area at home is no longer required.
The actual cost method
The actual cost method remains unchanged, and individuals can claim the actual cost of expenses and depreciating assets (ie. such as office furniture and laptop computers) you buy and use while WFH.
The revised fixed rate method
The revised fixed rate method has been updated to better match current WFH arrangements (after two years of the practice becoming commonplace), in an attempt to make it easier to calculate expenses and avoid apportionment calculations.
Taxpayers can use the revised fixed rate method if they meet the following criteria:
- they have been WFH while carrying out employment duties or carrying on a business on or after 1 July 2022;
- they have incurred deductible additional running expenses; and
- they have been keeping and retaining relevant records (ie. tax invoices or receipts).
Record keeping requirements
The finalised guidance in Practical Compliance Guideline PCG 2023/1 explains new record keeping requirements and a revised fixed-rate method which allows taxpayers to calculate a deduction at a rate of 67 cents per hour (increased from 52 cents) for the following additional running expenses:
- electricity and gas expenses, for lighting, heating, cooling and electronic items;
- internet expenses;
- mobile and home phone expenses; and
- stationery and computer consumables.
How is the WFH deduction calculated?
A taxpayer should take the following steps to calculate the total deduction for running expenses using the revised fixed rate method:
- calculate total number of hours the individual WFH during the income year (based on a timesheet, roster or diary kept contemporaneously);
- multiply the total number of hours by 67c per hour;
- calculate the work-related decline in value of any depreciating assets used to WFH and any other running expenses incurred (supported by invoices etc) which are not covered by the 67 cents rate per hour (above); and
- then the amount of any deduction is the total of the amounts obtained from the second and third points above.
The revised fixed rate method can also be used by businesses that operate some or all of their business from home to claim home based business expenses.
Please do not hesitate to contact your Lowe Lippmann Relationship Partner if you wish to discuss any of these matters further.
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