Tax Tips for Employees – Working from Home Tax Deductions

Thanks to the pandemic, many of us have permanently changed our work arrangements to include more time Working From Home (WFH). Now that lockdowns are a thing of the past, there are several important changes to the way WFH tax deductions are calculated.

The ATO has recently (February 2023) released new proposed tax guidelines for WFH. Our tax advisors have prepared this article to keep you abreast of the likely changes so that you start modifying your tax administration and recording methods.

Keeping on top of tax rules means you won’t miss any deductibles. Although it can be dry, learning about deductions means more money back into your pocket.

While working from home as an employee, you might be entitled to claim tax deductions for expenses incurred at home.

What expenses can I claim when working from home?

While working from home you may be able to claim a portion of your home office running expenses.

These expenses include:

• Electricity and gas for heating, cooling and lighting your home office;
• Depreciation of equipment (e.g. computers, laptops and/or tablets);
• Depreciation of furniture (e.g. desks and chairs);
• Telephone costs;
• Internet costs; and
• Office consumables such as stationery, printer paper and ink.

What are the ways to calculate my Tax Deductions?

There are now only two ways to calculate your home office expenses. The previous shortcut method introduced during the pandemic is no longer available.

The revised fixed rate and actual cost methods are outlined below. You can use either of these methods to give you the best outcome as long as you meet the eligibility and record-keeping requirements for the individual method.

While the actual cost method remains unchanged, there have been some changes to the revised fixed rate method.

Option 1: Revised Fixed Rate Method 

Similar to the previous Shortcut Method, employees can claim a set rate of 67 cents per hour for each hour they work from home under the Fixed Rate Method. However, this method can be used for the entire year.

The 67 cents per hour covers your deductible expenses for energy, internet, mobile and/or home telephone, stationery, and computer consumables for the income year.

This means you cannot claim an additional separate deduction for these expenses. So, for example, if you use your mobile phone when working from home and when you are working from somewhere other than your home, your total deduction for mobile phone expenses for the income year will be covered by the hourly rate of 67c per hour.

If you are looking to use the Fixed Rate method, you must:

From 1 July 2022 to 28 February 2023 – you must keep a record which is representative of the hours you have worked from home

From 1 March 2023 to 30 June 2023 

• you must record of the total number of hours you have worked from home (such as a timesheet, roster or diary), and
• provide evidence that you paid for each of the expenses incurred that are covered by the fixed rate method (for example, a phone or electricity bill). and,
• keep a record for any equipment you bought to work from home, like technology or furniture (which provides details of the supplier, cost, date acquired).

Note: You do not need to have a separate home office or dedicated work area set aside in your home in order to claim under the fixed rate method.

Option 2: Actual Cost Method

Under the Actual Cost Method, you can claim the actual work-related portion of expenses incurred while working at home. The work-related portion is generally calculated based on the floor area of your dedicated work area divided by the total floor area of your home.

Then this portion is multiplied by the total costs incurred for the period.

What expenses can’t be claimed?

We have outlined the everyday expenses that employees can claim, now, let’s quickly go over the expenses you cannot claim while working from home.

Office refreshments
Many may say that we can’t start work without our morning coffee. Whether that is true or not, the ATO does not allow refreshments, such as coffee, tea or milk, as deductions for employees while working from home.

Reimbursed expenses
You cannot claim any expenses that your employer reimburses. For instance, if you have an arrangement where your employer reimburses you for mobile or home internet costs while working from home, you cannot claim these expenses.

Childcare and child home learning costs
Unfortunately, childcare or child home learning costs are not tax deductible as a working-from-home expense.

Occupancy costs
And finally, as employees, we generally cannot claim occupancy costs while working from home. These include rent, mortgage repayments, water, council rates and body corporate fees.

How can Morrows Help?

To ensure you are compliant and to maximise your tax deductions for the 2023 Financial Year, please contact your tax professional to calculate the best deduction for your individual circumstances. Please reach out to your Morrows advisor if you’re unsure about any of the above matters.