The Australian Taxation Office (ATO) has recently announced changes to how your employees can calculate tax deductions if they work from home. Here’s your guide to the changes.
Millions of Australians work from home for some or all of their working week. If your business is structured to have your employees working from home at some stage, they might enjoy avoiding peak hour traffic and parking hassles, and having more flexibility in their day.
Being able to claim certain home-based expenses as a tax deduction is another benefit they could enjoy – so it’s important to know about the ATO’s new rules around working from home deductions.
It's important to know about these deductions as a business owner so your employees don’t run into trouble by claiming for certain expenses twice. For example, if you reimburse them for an out-of-pocket expense related to their work, they can’t then claim this expense as a deduction.
What are the new rules around claiming home-based expenses?
For your employee's 2022-23 tax returns, they can still calculate any working from home deductions using one of two methods:
- The fixed rate method
- The actual cost method
The fixed rate method has changed. This fixed rate is used to calculate claims for the work expenses where it’s difficult to draw a clear line between what is used for work and what is used for home. For example, it’s hard to clearly calculate how much of your employee’s home electricity is used for work. So they could choose to claim based on the fixed rate method.
Under the new rules, key changes to the fixed rate include:
- The fixed rate was 52 cents per hour worked at home – and will be now be 67 cents per hour worked from home.
- The rate now includes phone and internet expenses.
- Your working from home employees are no longer required to have a separate home office or dedicated workspace to make these claims.
What hasn’t changed?
Your employees can still calculate and claim other expenses, such as the decline in value of work-related equipment and expenses (such as office furniture or cleaning for a home office) if these aren’t covered by the fixed rate per hour.
The actual cost method hasn’t changed. If they use the actual cost method to calculate their deductions, and not the fixed rate method, the new rules won’t impact the way they make their claims.
If your employee is not sure which method of making claims suits them, encourage them to speak with a registered tax professional for advice to suit their situation.
Make sure you’re keeping accurate records
As a business owner, it’s important to keep all the appropriate records you need for tax purposes – and it’s important your employees do the same.
If they will be using the new fixed rate to make claims for their home-based deductions, they’ll need to:
- Create a timesheet, roster, diary or logbook of the hours they work from home for the entire financial year.
- Keep records such as phone and electricity bills to give evidence of each of the expenses covered by the fixed rate method.
- Keep receipts and invoices for your home-based work equipment (such as furniture or office equipment) including the supplier details, date purchased and the cost.
- Keep track of how they use their equipment for personal vs work use.
If they don’t have all of the above records, they’ll need to start keeping them for future tax returns. Since these are new rules, the 2022-23 financial year will be treated as a transitional year. Just for this year, they’ll need:
- A record to represent the total number of hours worked from home between 1 July 2022 and 28 February 2023
- A record of the total number of hours worked from home between 1 March 2023 to 30 June 2023
It’s important to keep clear and accurate records regardless of whether they use the new fixed rate method or the actual cost method for calculating their deductions..
Working from home can give you and your employees the ultimate flexibility to run your business – but it can come with a range of unexpected challenges too. If you’d like help to start or run a home-based business, contact our free business advisory service or sign up for our Running your Business from Home workshop.
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