Changes to the way you claim working from home tax deductions

In mid-February, the Australian Taxation Office (ATO) announced that there would be a change to the method of calculating work from home deductions for individuals.

Prior to July 2022, taxpayers who were working from home could use one of three methods for claiming:

• A Fixed Rate Method, which was set at 52 cents per hour from July 2018 to July 2022, to cover home office expenses such power usage and cleaning costs. This did NOT include deductions for stationery, phone or internet expenses.
• The Shortcut Method, which was introduced following COVID lock downs and covered deductions at a flat rate of 80 cents per hour. This amount included stationery, phones and internet expenses, as well as overheads such as power for lighting and heating costs.
• The Actual Cost Method, which involved record keeping of all costs incurred and written evidence to determine what amount of the expenses were work related.

However, effective from 1 July 2022 – which means the current income period of 2022/2023 – the Shortcut Method and the previous Fixed Rate Method are no longer applicable. Therefore, from this financial year onwards, taxpayers who work from home will have the choice of the following two options for claiming deductions.

• The Actual Cost Method – as outlined above; or
• A Revised Fixed Rate Method (RFRM), which will cover power, internet, phone, stationery and computer consumables. It is available to taxpayers who meet the criteria of working from home; incurring deductible additional running costs; and keeping and retaining relevant records. The RFRM is at a rate of 67 cents per hour during this financial year.

What does this mean for you?

Whilst the Shortcut Method was a reliable, easy to calculate method, the existing fixed rate method plus phone and internet cost often resulted in a better deduction for our clients. The new method now includes the phone and internet costs in the per hour claim rate that is lower than the existing shortcut method. We therefore wish to highlight to our clients if you used either of those two methods in your previous return, it is most likely your work from home deduction claim will be lower in the 2023 financial year in similar circumstances.

We suggest you discuss with your WLF Advisor when you next meet and consider what impacts this change has for you. Please also remember to keep relevant records and receipts, as these will be a requirement regardless of which method you use for calculating your deductions.