Should you use the new working from home tax deduction method?

The Australian Taxation Office (ATO) has changed the way that taxpayers can claim deductions for costs made when working from home with a revised fixed rate method. 

The new method can be used from 1st July 2022. From that date, the shortcut method ($0.80 cents per hour) and the old fixed rate method ($0.52 cents per hour) can no longer be used to calculate your deduction. However, you can still choose to use the 'actual cost method'. 

So what is the best option for you - the new revised fixed rate method or the actual cost method? We talk to JSA Accounting to find out. JSA Accounting is a local Adelaide firm with offices at Reynella and Hindmarsh.

What are the rules carried over from 2022?

Firstly, under the revised method, it’s no longer a requirement to have a dedicated home office to make a claim. The kitchen table or couch are allowed (phew!).

Secondly, you can claim 0.67 cents per hour for all your running expenses, rather than needing to calculate specific costs. However, from 1 March 2023, you will need to keep a record of all the hours you worked from home to use this new method (instead of a 4-week representative diary). But we'll go into more detail about that below. 

Methods

You have the ability to choose the revised fixed rate method or the actual cost method – whichever gives you the better deduction.

We are going to leave discussing claims for occupancy expenses such as rent, rates and loan interest out of this conversation because these claims have other significant requirements and possible negative tax impacts for your home. It can get pretty complicated so it’s probably best to get in touch with a tax agent who can work out what’s right for you.

Comparing methods

Here’s a breakdown of what’s included in the actual cost method and new fixed rate method.

Actual cost running expenses

The actual cost method allows you to claim a deduction for the actual expenses you had as a result of working from home. You may be able to claim a deduction for:

• Data and internet
• Mobile and home phone usage
• Electricity and gas
• Stationary and computer consumables
• Computers and furniture, as well as any maintenance and repairs of these items
• Cleaning - if you have a dedicated home office).

It's important to note that a dedicated home office is required under this method and you must have detailed calculations and records for all the working from home expenses being claimed (including receipts, bills and other similar documents).

You must also record of the number of hours worked from home during the income year. This can either be the actual hours or a diary or timesheet kept for a 4-week period to show your usual pattern of working at home. 

Shortcut running expenses:

You can claim at 0.67 cents per hour for: 

• Home and mobile phone usage  
• Internet and data
• Electricity and gas
• Stationery and computer consumables

You can claim separately for the decline in value of assets used while working from home such as computers and office furniture, the repairs and maintenance of these assets and cleaning - if you have a dedicated home office.

It's important to note that from 1 March 2023, you will need to keep a record of all the hours you worked from home to claim this method for the entire income year instead of a 4-week representative diary. However, the ATO will still accept a representative diary for the period 1 July 2022 to 28 February 2023.

Which is the best option for you?

The new revised shortcut method will affect everyone differently.

The actual method involves detailed paperwork, time-consuming calculations and comes with a greater risk of being challenged by the ATO but could get you greater deductions.

The revised fixed rate method is simpler to apply and reduces the risk of claims being challenged. However, you may get less deductions.

It pays to spend a bit of time working out whether the revised method is the best option for you, and always chat to a tax agent if you're not sure. Remember it's the ATO's job to collect taxes, not help you get the best possible refund.

Find out more about working from home tax deductions by visiting the JSA Accounting website.