New record keeping requirements for working from home expenses
Working from home is becoming the norm for many people, however the rules regarding how you claim working from home deductions have recently changed.
The ATO has recently released a finalised guidance (PCG 2023/1) which outlines these updated rules. You need to be aware of these changes so that you can keep the appropriate records to maximise your tax claims in your 2023 Tax Return.
To claim working from home expenses, you must:
- be working from home to fulfil your employment duties, not just carrying out minimal tasks, such as occasionally checking emails or taking calls
- incur additional running expenses as a result of working from home
- have records that show you incur these expenses.
WHAT ARE THE KEY CHANGES?
From 1 July 2022, the ATO has explained that taxpayers who are working from home can claim deductions based on two methods, the Revised Fixed Rate Method or the Actual Cost Method.
The above three basic requirements are required for either method.
Revised Fixed Rate Method
This method covers the following expenses:
- Energy expenses (electricity and/or gas) for lighting, heating/cooling and electronic items used while working from home;
- Data Internet expenses;
- Mobile and/or home telephone expenses; and
- Stationery and computer consumables.
A key change is that you do not need to have a separate home office or dedicated work area set aside in your home in order to rely on the revised fixed rate method.
Also, if more than one individual is working from home at the same time, each individual will be able to apply the fixed rate method if they each meet the requirements listed above, providing the total household claim doesn’t exceed the expense incurred.
You can claim a separate deduction for the decline in value of assets used while working from home, such as computers and office furniture and the repairs and maintenance of these assets.
Actual Cost Method
To use the actual cost method, you claim for the actual expenses incurred by working from home. This method does require detailed calculations and records. If you plan to use this method, see ato.gov.au/home
VERY IMPORTANT: THE RECORDS YOU NEED TO KEEP
To claim under the Revised Fixed Rate Method, you need to keep the following records to prove your working from home tax deductions for the 2023 financial year:
- A record which is representative of the total number of hours you worked from home during the period from 1 July 2022 to 28 February 2023; and
- A record of the total number of actual hours you worked from home for the period 1 March 2023 to 30 June 2023.
For the 2024 and later financial years, the ATO expects you to keep a record for the entire income year of the number of hours they worked from home during that income year. An estimate for the entire income year or an estimate based on the number of hours worked from home during a particular period will not be accepted.
A record of your hours for the income year can be in the form of:
- a diary or similar document kept contemporaneously.
You must also keep evidence for each of the additional running expenses that you incurred. The documents you need to keep in order to demonstrate that you have incurred additional running expenses must show what the expense is and that you incurred the expense.
For energy, mobile and/or home telephone and internet expenses, you must keep one monthly or quarterly bill. If the bill is not in your name, you will also have to keep additional evidence showing you incurred the expenses; for example, a joint credit card statement showing payment or a lease agreement showing you share the property, and therefore the expenses, with others.
For stationery and computer consumables, which are occasional expenses, you must keep one receipt for each item purchased.
Please contact our office and speak with one of our accountants if you need any assistance with this so we can help you to maximise your tax deductions in your 2023 and future year Tax Returns.