With the rise of remote work in recent years, more and more Australians are setting up home offices.
Whether you’re a full-time employee, a freelancer, or a business owner, it’s important to understand how to correctly claim home office expenses on your tax return.
As of 1 July 2022, the Australian Taxation Office (ATO) introduced a revised fixed-rate method of 67 cents per hour for claiming these deductions, replacing the previous 52 cents rate. While the higher rate is welcome news for taxpayers, getting it wrong could lead to a reduced deduction or even penalties in the event of an audit.
In this blog post, we’ll break down the new rules to help you maximise your claims while staying compliant and avoiding any red flags with the ATO.
Eligibility Requirements for the 67 Cents Method
Before we get into the nitty-gritty of record keeping and calculations, let’s clarify who is eligible to use the new 67 cents per hour method. The ATO has specific criteria for what constitutes “working from home” for tax purposes.
To claim under this method, you must:
- Use your home for work or business purposes, meaning you engage in employment duties or carry out business activities from home.
- Carry out substantial work at home directly related to your income-earning activities. Incidental tasks like taking calls or checking emails will not count as working from home, and you won’t be eligible for the revised fixed-rate method.
It’s important to note that you must be incurring additional running expenses as a result of working from home. These could include things such as:
- Electricity and gas for heating, cooling, and lighting
- Internet costs
- Phone bills
- Computer consumables
- Stationery
If you’re not paying anything extra by working from home, you won’t have anything to claim.
One piece of good news is that you no longer need to have a dedicated work area to claim the 67 cents rate. Previously, your home office had to be used exclusively for work purposes. Now, as long as you meet the eligibility criteria above, you can work from any room in the house and still claim.
Record Keeping Requirements
Now for the less exciting but equally important part: record keeping. To claim the 67 cents per hour rate, you’ll need to keep detailed records of both your expenses and the hours you worked from home. This is a key change from the previous 52 cents method, which had less stringent requirements.
You must keep the following:
1. Receipts and records for expenses incurred while working from home, such as:
- One monthly or quarterly bill for electricity, gas, mobile and home phone, and internet expenses
- Additional evidence if the bill is not in your name (e.g., joint credit card statement or rental agreement)
- One receipt for each type of stationery or computer consumable purchased
2. A log of hours worked from home, which must strictly relate to the hours worked at home and be supported by your records
The log of hours is particularly important. You must record the actual time spent working from home, as opposed to the previous 52 cents method which allowed a four-week representative diary to calculate the total hours for the year.
This may sound like a lot of extra paperwork, but it’s essential for validating your claim. The ATO has stated that failure to maintain adequate records could result in a reduced deduction or even full denial in an audit. It’s not worth the risk – make record keeping a habit from day one.
How Are Phone and Internet Expenses Treated Under the 67 Cents Method?
Phone and internet expenses are included in the 67 cents per hour rate, but only for the hours worked at home. You cannot claim additional phone and internet expenses incurred outside of your home office hours under this method.
If you have significant work-related phone or internet costs, you may want to consider claiming these separately under the actual expenses method.
What if Multiple People Are Working From the Same Home?
If more than one person is working from the same home, each individual can claim the 67 cents rate as long as they meet the eligibility criteria. However, each person must keep their own records of hours worked and expenses incurred. You can’t “double dip” by claiming the same expenses twice.
Can I Claim a Portion of My Rent or Mortgage?
In most cases, no. Occupancy expenses like rent, mortgage interest, property insurance, and rates are not included in the 67 cents rate. You can only claim these if your home qualifies as a “place of business,” meaning you have a dedicated space used exclusively for work and your home is your primary place of business. For most employees working from home, occupancy expenses are not deductible.
The Actual Expenses Method
It’s worth noting that the 67 cents per hour method isn’t the only way to claim home office expenses. You can also choose to claim your actual expenses, either in addition to or instead of the fixed-rate method.
Under the actual expenses method, you calculate the specific work-related portion of each home office expense and claim that amount. This includes costs like:
- Depreciation of office furniture and equipment (e.g., computers, printers)
- Cleaning costs for your dedicated office space
- Repairs to home office equipment or furniture
To use this method, you’ll need to keep even more detailed records, including:
- Receipts or invoices for all expenses claimed
- A log of hours spent working from home to calculate the work-related percentage
- A floor plan of your home showing the dedicated office space
- A depreciation schedule for office furniture and equipment
The actual expenses method may be preferable if you have significant home office costs that exceed what the 67 cents rate would cover. However, it does require more meticulous record keeping and calculations.
Choose the Right Method for Your Business
When deciding between the fixed-rate method and the actual expenses method, consider the following factors:
- Simplicity and convenience – The fixed-rate method offers a simpler approach with less record-keeping.
- Actual expenses incurred – If you have substantial home office expenses, the actual expenses method may result in a higher deduction.
- Time and effort – The actual expenses method requires more time and effort to maintain records and perform calculations.
The revised fixed-rate method for claiming home office expenses offers a simplified approach for taxpayers working from home. By understanding the eligibility criteria, record-keeping requirements, and practical application of this method, you can ensure that you claim your deductions accurately and minimise the risk of an ATO audit.
If you have any doubts or require assistance with your home office expense claims, don’t hesitate to contact us. Our Gold Coast Accounting Firm KeyPoint Accountants can provide personalised guidance to help you maximise your home office deductions while ensuring compliance with ATO regulations.
