The 2023 financial year brings with it a revision of the ATO’s work from home (WFH) tax deduction and more specifically the shortcut or fixed rate method. Previously the fix rate method allowed taxpayers who work from home to claim a rate if 80c (a temporary rate introduced during COVID), but this has changed for 2023.
The key revisions to the 2023 financial year’s work-from-home deduction
- A reduction to the rate, changing from 80c per hour to 67c per hour
- More stringent record keeping requirements
o A record that ‘represents’ hours worked from home until 31st December 2022
o A record of ‘actual’ hours worked from home from 1st January 2023 onwards
- The exclusion of individuals who do not actually incur the additional costs of working from home, namely dependents “pay board” to parents
What is the fixed rate and what changes have been made to claiming it this year?
The fixed rate work from home deduction is a simple calculation that could be used to reduce a single deductible amount that covered all additional expenses associated with working from home. Mark Chapman, Director of Tax Communications at H&R Block, has estimated that an average taxpayer using the previous 80c method to claim for a six-month period would generate a deduction of approximately $768.
The fixed rate simplified the record keeping requirements associated with the deduction by including expenses like internet, mobile, electricity, and any decline in the value of home office equipment within the 80c rate. The revision of the rule has maintained the approach of providing taxpayers with a simple fixed rate deduction, however, there have been some changes to the value of the rate, being reduced from 80c to 67c per hour worked from home. The reduced rate still includes energy, internet, and mobile expenses as well as costs incurred for stationery and computer consumables. This means that taxpayers claiming the fixed rate work-from-home deduction will not be able to claim any of the expenses it includes, such as work-related phone use, in other form.
The revision that might have the biggest impact on taxpayers’ day to day, is the record keeping requirements under the new ruling. The record keeping requirements in the past meant that it was only necessary to keep records that ‘represented’ the number of hours work and this will remain the case for those claiming the revised short-cut method up until the change of the calendar year (31st December 2022). The revised requirements, however, require taxpayers to keep an ‘actual’ record of the hours worked from home from 1st of January 2023 onwards.
In practices this will mean that from the 1st of July 2022 until 31st of December 2022 those claiming a work-from-home deduction will be able to use records that represent their hours work. For example,
“I have a record of a 4-week period where I work 30 hours a week from my home office and I had 2 weeks off in November, therefore I seek to claim 30 hours X 24 weeks worked X the 67c short-cut WFH rate”
This would generate a $482 deduction (30x24x0.67 = $482) for the first half of the 2023 financial year. However, from the 1st of January 2023 the same taxpayer would be required to keep a record of the ‘actual’ hours work from home, for example:
1st January 2023 – Worked from home 9am to 5pm
2nd January 2023 – Worked from home 9am to 5pm
3rd January 2023 – Worked form home 9am to 11:30am before returning to the office
4th January 2023 – Finished up some work form at home from 5pm to 7pm
Etc.…. until 30th June 2023
In addition to being required to keep records of the ‘actual’ hours worked from home, records of the additional expenses generated by the work conducted at home are now required. An example of this for the energy component of the deduction is the requirement to keep at least one monthly/quarterly energy bill from the period being claimed. These additional record keeping requirements are no doubt the most significant changes to the practical implications of claiming the work-from-home deduction in the 2023 financial year.
Were there any changes to who can claim the work from home deduction?
Fortunately, the eligibility criteria that determines who can claim a work from home deduction retain the two key beneficial features from the old rulings. These are:
- You do not require a dedicated office within your home to be eligible to claim
- There is no limit to the number of individuals who can claim in a household
However, the revision did see the introduction of limitations that specifically rule out individuals with nonformal rental agreements, such as “paying board” to parents. The principle behind this exclusion is that individuals in these agreements do no ‘incur’ additional costs by working from home, making the fact additional costs are generated inconsequential for tax purposes. One of the examples provided by the ATO of an ineligible individual is as follows.
“Sergei is employed as a graphic design artist. He works in the office three days a week and works from home two day per week. Sergei lives with his parents and when he works from home, he works in his bedroom using his employer-provided laptop and mobile phone. Sergei does not pay his parents any rent and he does not contribute to any of the household bills.
Although Sergei is carrying out his employment duties while working from home, he is not incurring additional running expenses. Accordingly, Sergei is not entitled to a deduction for additional running expenses, and he cannot rely on this guideline.”
Note: the same would be true if Sergei paid a fixed weekly/monthly rent to his parents, as he is not sharing in the variable expenses of the household.
If you have any concerns about the changes and how they may impact you, please reach out to speak with one of our team members.