Advice Business Personal Tax

Whether it’s to avoid peak hour traffic or parking hassles many Australians have embraced the flexibility of working from home. So, it’s important to know that the Australian Taxation Office (ATO) made changes regarding how to calculate tax deductions, starting from 1 July 2022. The Practical Compliance Guidelines (PCG 2023/1) were finalised this year and outlines the ATO’s post COVID-19 approach.

So, if you’re a business owner with staff working from home, or operate a small business yourself from home, make note of these changes which will come into effect for the 2022-23 financial year. Let’s unpack these changes now.

What are the new rules?

Currently, there are three methods for claiming deductions on working from home expenses. These are:

  • The fixed rate method
  • The actual cost method
  • Floor area (for sole traders and partnerships)

You can still use the actual cost method as per the previous tax year, or floor area if you’re a sole trader or partnership.

It is only the fixed rate method that is changing.

The fixed rate method is used when calculating claims for work expenses that are challenging to distinguish between home and work use. For instance, determining the exact amount of an employee’s home electricity used for work purposes. So, opting to claim based on the fixed rate method is a viable option.

Under the new rules:

  • The fixed rate for working from home has increased from 52 cents to 67 cents per hour.
  • The rate now includes phone and internet expenses.
  • You no longer need to have a separate home office or workspace to claim the fixed rate.
  • You can deduct up to $300 of additional expenses if they are not included in the fixed rate (such as home office furniture and equipment).
  • You are no longer able to deduct energy, internet usage, phone usage or stationery/computer consumables separately. This is included as part of the fixed rate option.
  • Any additional expenses over $300 are calculated as depreciating assets.

If you are a sole trader or partnership, these fixed rate method changes will affect you with occupancy expenses and depreciation but only if you choose to use it. The other operating cost options are available, such as floor area or the actual cost method.

New record-keeping requirements in a nutshell

From 1 March 2023, you’ll need to keep accurate and ongoing records of working from home hours.

Previously, it was acceptable to present a 4-week diary that exemplified your schedule and hours worked from home. This will no longer be acceptable.

You will need to:

  • Keep a timesheet, diary, log, spreadsheet or similar record of all hours worked at home for the entire income year, effective 1 March 2023.
  • Keep records such as phone, internet and electricity bills to provide evidence of each expense.
  • Keep receipts and invoices for your home-based work equipment (such as furniture or office equipment) including the supplier details, date purchased and the cost.

Which one is better – fixed rate or actual cost?

Although the fixed rate is more streamlined, it may not be the most suitable option for you. If you properly calculate your actual work-from-home expenses, you may receive more deductions and ultimately more money. However, choosing to claim actual costs could be a more complex and time-consuming process, and you may not end up with extra money after all the effort.

Keeping accurate records and receipts is your responsibility and will assist you in the long run when making claims.

As the 2022-23 financial year will be treated as a transitional year, with these changes it is advisable to contact a tax agent when filing your next income tax return.

We can help you with all the finer details to maximise your return, click here to book an appointment with Amanda today.

This blog post is intended for informational and educational purposes only. The information provided in this blog post should not be taken as professional accounting advice or recommendations.

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