ATO recently announced changes to Work from home deductions 2023. These new changes would be effective from 01 July 2022. This post will cover all that is new to work-from-home expenses in 2023. Further, it will elaborate on some critical concepts included in work-from-home deductions.
ATO media release announced they would be cracking down on inappropriate work-from-home expenses claimed this year. It is essential to review all the information on this page if you plan to file your returns in 2023.
All taxpayers must conform to new rules when filing their 2023 tax returns.
Key areas to which new changes would impact:
- Eligible claimable expenses
- Additional running expenses
- Revised fixed-rate method
- Actual cost method
These changes are super relevant to individual taxpayers. And since after covid, most people prefer working a few days from home. We would like to provide you with our take on what expense you should be claiming and how much can be claimed.
We have previously noticed people trying to claim in full their internet bills, phone bills, personal use furniture and excessive portions of their utility expenses. This is a big red flag under ATO’s eligible expenses claims law and might result in a tax audit.
Please note that no personal expenses can be claimed as work-from-home expenses unless incurred in the course of producing your taxable income.
Now let us look into what would constitute an eligible claimable expense.
Eligible Work from home deductions 2023
ATO allows taxpayers to claim deductions for the costs of working from home, including items like stationery, occupancy expenses, energy expenses, and office equipment.
To claim any such expenses, you must be:
1- Working from home frequently to fulfil your work duties.
2- Incurring additional running expenses as a result of working from home
3- Maintaining records of any such expenses claimed
Any expenses that qualify under the above-mentioned criteria or are incurred while carrying employment duties or business from home are eligible for deductions.
Please note ATO provides guidelines for what comes under work from home. The work carried out has to be substantive and directly related to the taxpayer’s income-producing activities. You cannot claim expenses related to carrying out minimal tasks, such as checking email and taking phone calls at home.
ATO requires taxpayers to distinguish between private and work-related expenses. Only the work-related portion is advised to be claimed.
Additional Running Expenses
So what would qualify under an additional running work-from-home expense?
ATO defines running expenses as general domestic expenses. However, to be claimable, they must incur in addition to the ordinary living expenses due to work-from-home activities.
These expenses may include:
- Internet or home phone expense
- Energy Expenses, such as for heating or cooling and lighting
- Mobile phone and internet/data expenses
- Office Supplies
- Expenses incurred for the home office
- Depreciable value of office furniture, such as chairs, desks
- Depreciable value of computers, laptops, electronic equipment
- Expenses incurred in repair and maintenance of home office
- Occupancy expenses, such as rent or mortgage interest
- Cleaning expenses
What is depreciable value and how to calculate it?
The depreciable value is the allowable deduction for a decline in the value of capital assets.
As per ATO legislation, acquiring capital assets is not a fully deductible expense. And therefore, taxpayers are required to apportion the cost of a capital asset over its effective life and claim an apportioned deduction for each period.
To understand this consider this scenario.
Sam worked from home for two days weekly in the 2023 financial year. He bought a new laptop, a monitor and a chair to set up his work office at home. Sam has maintained the records of purchase and the cost of assets was as follows:
> Laptop and monitor bought on 01/10/2022 from Jb hifi for $1,600, and $300 respectively.
> Chair was ordered online on 16/04/2023 for $250 for chair, $30 delivery charges.
Please note that Sam cannot claim the over all value of each of this assets.
ATO requires Sam or his Accountants to work out depreciable value of the assets. For that you need the total cost and the effective life of the asset.
ATO has provided a list of assets and their effective lives. It varies from industry to industry and for what work purpose it is used. ATO provided effective lives of an asset can be found here.
For the items in our example, the effective life of the laptop would be as follow:
| Asset | Effective life |
|---|---|
| Laptop | 2 |
| Monitor | 4 |
| Chair | 10 |
So, effectively for 2023, the depreciable value claimable would be
| Asset | Effective Life | Cost | Depreciable value for 2023 |
|---|---|---|---|
| Laptop | 2 | $1,600 | $800 |
| Monitor | 4 | $300 | $75 |
| Chair | 10 | $280 | $28 |
However, these assets were not acquired at the start of the financial year. Therefore, it is required to apportion the cost to the days the asset was used for income-producing activities.
| Asset | Depreciation Value for 2023 | No. of Days Asset used | Allowable Deduction for 2023 |
|---|---|---|---|
| Laptop | $800 | 272 | $596 |
| Monitor | $75 | 272 | $55 |
| Chair | $28 | 75 | $5.75 |
Values in column Allowable Deductions for 2023 are what Sam can claim in his 2023 tax returns for his home office assets according to Work from home deductions 2023
Furthermore, ATO-provided guide to depreciating assets can be dived into to learn how to calculate the depreciable value of any asset.
Please note that you must provide records of depreciating assets for any deductions claimed in your return. Details of the records to keep can be found here.
How to claim Work from home deductions 2023
From 1 July 2022, any of these 2 methods can be used to claim any Work from home deductions 2023 financial year.
- Revised fixed rate method
- Actual cost method
Now let us dive into the changes to each of these methods for current year.
Revised fixed rate method
The revised fixed rate method allows you to claim 67 cents per hour working from home.
As per the new changes, you are no longer required to have a dedicated home office to use this method.
The list of expenses included that can be claimed (67 cents) in Work from home deductions 2023 are:
> Internet and data
> Mobile and home phone
> Energy costs
> Stationary and consumables, such as printer ink
The list of expenses that need to be claimed separately are:
> Decline in value of assets, such as office equipment and furniture
> Cleaning and occupancy costs
> Repair and maintenance of office assets
Records To Keep
Please note that ATO requires extensive records to be kept for any expenses claimed under this method. It is essential to keep these records if you are claiming any work from home expenses in 2023. You are required to keep the following records:
> All hours worked from home for the entire year (e.g. a timesheet, roster, diary or anything similar to evidence proof of work from home)
> Evidence of payment of expenses covered by the fixed rate method (e.g., phone, internet, and electricity bills – you are required to keep at least one bill for each of these expenses)
From 1 March 2023, a record of all the hours worked from home is required before that total number of hours worked from home is to be declared.
How has the fixed rate changed from 2022?
The table below summarises the key changes to the fixed rate method in 2023.
Actual Cost Method
This method allows you to claim for the actual expenses incurred as a result of working from home.
Please note that you might be able to calculate higher deductions using this method. Extreme caution is advised to make appropriate calculations. Overcalculations can easily be detected by ATO and would be scrutinised as tax fraud.
The list of expenses that be claimed as an actual cost of working from home:
> Internet and data
> Mobile and home phone
> Energy costs
> Stationary and consumables, such as printer ink
> Decline in value of assets, such as office equipment and furniture
> Cleaning and occupancy costs
> Repair and maintenance of office assets
You might notice that list of expenses stays almost the same. It is just the approach you adopt for claiming them that matters.
In the case of opting for the actual cost method, ATO advises additional disclosure requirements. Taxpayers are to keep high attention to detail and disclose details of methods of calculations used and original records.
For example, if you claim an amount for electricity in your returns. You would need to substantiate the actual cost per unit of electricity, actual units used per hour and number of hours.
Records to keep
You are required to keep a record of every expense you claim. This is applicable for work from home expenses claimed in 2023.
For running expense, you need to justify calculations of the additional expenses for these expenses:
> Receipts, bills, amount and justifiable calculations of expenses
> Evidence of proportion of your persona and work-related use of items or services claimed in expenses
You can be allowed to provide the entire year record. Alternatively, you can keep a 4-week record and spread the expense over the financial year.
The ATO focuses on the changes to the Work from home deductions 2023. These changes are in the context of more people returning to offices than before.
The revised rules for this year are set out in PCG 2023/1. The media release states that to claim working-from-home expenses as a deduction, taxpayers can use the actual cost, or the revised fixed rate method, as long as they meet the eligibility and record-keeping requirements. I hope you like our detailed articled explaining details regarding Work from home deductions 2023.
