Work From Home and Change in Tax Deductions

The COVID-19 pandemic has caused a major shift in the way people work, with many now working from home. This has led to new expenses and challenges, but it has also opened up the possibility of tax deductions for those who are now working from home.

To be eligible for a deduction for your work-from-home expenses, you must:

1. Engage in work that is directly related to your employment duties and not just minimal tasks.

2. Incur expenses that are exclusive to working from home, over and above your normal expenses.

Some of the expenses that may be eligible for deductions include:

1. Running expenses: These are expenses directly incurred as a result of working from home, such as electricity and gas bills, phone and internet expenses, and office furniture depreciation.

2. Depreciation of equipment: If you have purchased equipment, such as a computer or printer, for work purposes, you may be able to claim a deduction for its decline in value over time.

3. Occupancy expenses: These are expenses such as mortgage interest or rent. Please check with your accountant before claiming these as it may have Capital Gains Tax consequences if you own your home.

There are two methods to claim the deductions:

1. Fixed rate method- The fixed rate method allows taxpayers to claim a rate of 67 cents per hour for running expenses, including electricity, gas, and internet expenses.
   
   Taxpayers can also separately claim the work-related portion of the decline in value of depreciating assets, such as office furniture and technology. This updated method can also be used by businesses that operate some or all of their business from home to claim home-based business expenses.
   
   If you plan to use the revised fixed rate method for your 2022-23 tax return, you must have a record that represents the hours you worked from home between 1 July 2022 and 28 February 2023. From 1 March 2023 to 30 June 2023, you must have a record of the total number of hours worked from home, evidence of expenses incurred covered by the fixed rate method, and records for any equipment purchased to work from home, like technology or furniture.
   
   
2. Actual cost method- requires taxpayers to keep detailed records of all their expenses, including receipts and invoices, and calculate the portion of those expenses that relate to their work use. The percentage of actual expenses method requires taxpayers to keep a diary for a representative four-week period, showing the percentage of the household expenses that relate to their work use. They can then claim that percentage of their total expenses for the year.

The two methods have their own eligibility requirements. Please get in touch with your accountant to determine the best method to use.

This blog has been prepared for the purposes of general information and guidance only. It should not be used for specific advice or used for formulating decisions under any circumstances. If you would like specific advice about your own personal circumstances, please feel free to contact us on 02 9411 5422. We can help make sure the right method is used to give you the maximum possible tax deduction associated with any of these methods.