As the world continues to adapt to the new normal brought on by the COVID-19 pandemic, remote work and home offices have become increasingly common. The Australian government acknowledges the significant shift in work arrangements and has made certain adjustments to the working from home deduction for the 2023 financial year, building upon the policies implemented previously. In this article, we will explore the changes in the home office deduction in Australian between the financial year 2023 and 2022, providing an overview of the key updates.

For the financial year 2023, taxpayers have the option to choose one of two methods to claim their deductions for working from home: the “fixed rate” method or the “actual cost” method. Only the fixed rate method is changing in FY2023, while the Shortcut method, which was temporarily used during the pandemic, will no longer be available so won’t be compared here.

Method 1: Revised Fixed Rate Method

• Rate and Scope

The revised fixed rate method increases the rate from 52 cents per work hour to 67 cents per work hour. This higher rate encompasses energy costs, phone usage, internet expenses, stationery, and computer consumables. It simplifies the taxpayer’s calculation process and includes costs that are difficult to accurately measure.  However, the 52 cents per work hour doesn’t include phone usage and internet expenses which is on top of the fixed rate method.

• No Dedicated Home Office Required

Unlike before, under the revised fixed rate method, taxpayers no longer need to have a dedicated home office space to claim deductions for working from home. This change recognizes the evolving nature of contemporary work arrangements.

• Additional Claimable Items

There have been changes in separately claimable items for the 2023 financial year. Taxpayers can claim the decline in value of assets used for work at home, such as computers and office furniture, as well as the costs of repairing and maintaining these assets. They can also claim the expenses related to cleaning the dedicated home office.

• Record-keeping

Taxpayers need to maintain more precise records than before. Starting from March 1, 2023, the Australian Taxation Office (ATO) will no longer accept estimates, representative four-week diary, or similar documents under this method. Instead, taxpayers are required to keep records of all their time spent working from home throughout the entire income year. Records can be kept in any form as long as they are saved at the time of occurrence, such as schedules, rosters, time logs from accessing employer or business systems, or a diary for the whole year. Records must be kept for each expense incurred by the taxpayer that is covered by the fixed rate per hour (for example, if the taxpayer uses the phone and electricity while working from home, a bill must be retained for each expense).

Method 2: Actual Cost Method

• Compared to previous years, the actual cost method remains unchanged.

Taxpayers can deduct the actual portion of operating expenses that are work-related. This method requires keeping all receipts, bills, and similar documents to demonstrate that the taxpayer has incurred the expenses, along with records of the time spent working from home during the income year (actual hours or representative four-week diaries or similar documents are acceptable). Additionally, taxpayers need to provide records of how they calculated the work-related and private portions of their expenses. Please note that expenses reimbursed by the employer cannot be claimed as deductions.

Regardless of the method chosen, if taxpayers purchase assets and equipment for work that cost more than $300, they cannot claim the full amount immediately and must depreciate the expenses over a set number of years based on the proportion of work usage.

The above summary outlines the changes in the home office deduction for the Australian financial year 2023 compared to the financial year 2022. By introducing revised fixed rate method, the government aims to provide simplified avenues for employees to claim working from home expenses. However, individuals need to stay informed about the latest updates and requirements to ensure compliance and maximize their entitlements.

Should you please have any question in regards to above, please feel free to contact our friendly team in Pitt Martin Tax at 0292213345 or info@pittmartingroup.com.au.

The material and contents provided in this publication are informative in nature only.  It is not intended to be advice and you should not act specifically on the basis of this information alone.  If expert assistance is required, professional advice should be obtained.

By Yvonne Shao @ Pitt Martin Tax