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Changes to working from home deductions
Article published on: 22-02-2023
The ATO has released PCG 2023/1, which provides guidance on the revised fixed rate method for calculating tax deductions for expenses resulting directly from working from home (WFH).
PCG 2023/1 applies from the 2022/23 income year. Individuals can rely on PCG 2023/1 where they use the revised fixed rate method and keep relevant records of the number of hours they worked from home and other documents proving their expenses.
Summary
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From the 2022/23 income year, individuals can only use either the revised fixed rate method or the actual cost method.
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To claim a deduction under either method, the expense must have been incurred in gaining or producing the individual’s assessable income, or necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income. [1] Also, the expense must not be capital in nature.
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The fixed rate amount that may be claimed from 2022/23 has increased from 52 cents to 67 cents for each WFH hour. The expenses covered by this fixed amount and those that can be claimed separately have also changed (see comparison table below).
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The actual costs method involves more detailed calculations while the revised fixed rate method is easier to use and less time consuming.
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The ATO’s depreciation and capital allowances tool may be used for depreciating assets under both methods.
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The shortcut method, introduced on 1 March 2020 when many worked from home because of COVID, ceased on 1 July 2022. This shortcut method had allowed an 80 cent deduction per hour WFH.
Revised fixed rate method
Under the fixed rate method, individuals can deduct 67 cents per WFH hour during the income year for the following additional running expenses:
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energy (electricity and/or gas for lighting, heating and cooling and electronic devices used while WFH)
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internet
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mobile and/or telephone, and
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stationery and computer consumables.
Additional separate deductions for any of the above expenses cannot be claimed. A separate deduction can be claimed for the decline in value for each depreciating asset used for WFH and other additional running expenses except for expenses mentioned above.
The previous fixed-rate method allowed only 52 cents for each WFH hour. This method covered running expenses for electricity and gas, home office cleaning and the depreciation of furniture and furnishings. A separate deduction could be claimed for work-related internet, mobile and home telephone expenses, stationery and computer consumables, and the decline in value of a computer, laptop or similar device.
The table below compares the fixed rate method and revised fixed rate method.
Fixed rate method – up to 30 June 2022
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Revised fixed rate method from 1 July 2022
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52 cent deduction x WFH hour covers:
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energy expenses (gas and electricity)
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decline in value of furniture and furnishings, and
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home office cleaning.
A separate deduction can be claimed for:
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internet
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mobile and telephone
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stationery and computer consumables, and
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decline in value of a computer, laptop or similar device.
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67 cent deduction x WFH hour covers:
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energy expenses (gas and electricity)
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internet
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mobile and/or telephone, and
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stationery and computer consumables.
A separate deduction can be claimed for:
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decline in value of furniture and furnishings
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home cleaning only if dedicated work area, and
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decline in value of a computer, laptop or similar device.
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Calculating total deductions using the revised fixed rate method
Step 1: Calculate the number of hours worked from home during the income year
Step 2: Multiply total number of WFH hours in the income year X 67 cents
Step 3: Then, calculate the decline in value of any work-related depreciating assets used when working from home and any other WFH running expenses (excluding running expenses covered by the revised fixed rate method)
Step 4: Add the Step 2 and Step 3 amounts. The total will be the amount that can be claimed as a deduction for WFH expenses (see example below).
When can an individual rely on PCG 2023/1?
An individual can rely on PCG 2023/1 where on or after 1 July 2022 they carried out employment duties or carried on their business from home and incurred additional running expenses because of these activities. The individual must keep and retain records of:
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the number of WFH hours during the income year (using time sheets, rosters, logs of time accessing employer or online business systems, time tracking apps or a diary or similar document)
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invoices, bills or credit card statements for each additional running expense incurred during the income year which is covered by the 67 cents rate per hour
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energy, mobile phone, home phone and internet bills where applicable
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receipts for stationery, computer consumables or other occasional expenses
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written evidence for the decline in value for each depreciating asset showing:
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name or business name of the supplier
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asset’s cost
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nature of the asset
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date the asset was purchased
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day the record was made, and
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any other document proving the expense, including documents containing any election, choice, determination or calculation and particulars showing the basis of any calculations.
For the 2022/23 income year, a record representing the total WFH hours from 1 July 2022 to 28 February 2023 and a record of the total number of actual hours worked from home from 1 March 2023 to 30 June 2023 must be kept.
From the 2023/24 and later income years, the individual must keep and maintain a record of actual WFH hours with time sheets, rosters or diaries or similar documents. Estimates cannot be accepted.
Example
Pia is employed as a graphic designer. In November 2022, she works two days a week from home and three days a week at the office.
On 1 December Pia sets up an office in a room at home and she buys a computer for $1,499, a desk for $250 and an office chair for $299. She also purchases stationery to use while working from home.
She starts working from home on 6 December 2022. She uses the lights in her home office, her laptop, her personal internet connection and her personal mobile phone (which she also uses at her employer's office and for private purposes) for work she does at home.
Until the end of February 2023, she uses her air conditioning to cool her home office and, from around April 2023 until 30 June 2023, her gas heating to warm the room. She enters the number of hours she works from home during the 2022/23 income year in her outlook calendar (a total of 560 WFH hours).
For a representative four-week period, Pia keeps records showing she uses her laptop, desk and office chair for about five hours per week for personal use and around 20 hours per week for work purposes.
She keeps her quarterly invoices for her electricity and gas expenses, her monthly internet and mobile phone bills for the period 6 December 2022 to 30 June 2023. She also keeps the receipt for the stationery she purchased on 1 December 2022.
When she prepares her tax return for the 2022/23 income year, Pia determines she is eligible to use the revised fixed rate method for calculating additional WFH running expenses because she carried out her employment duties from home, incurred additional WFH running expenses and retained the relevant records of her WFH hours, expenses and depreciation schedules.
She calculates the deduction for additional running expenses for electricity, gas, mobile phone, internet and stationery:
560 hours x 67 cents = $375.20
She calculates the deduction for the desk and chair based on the full purchase prices as each cost less than $300. However, the deduction must be reduced for her private use of the items:
Total hours assets were used per week = 25 hours
5 hours per week ÷ 25 hours per week = 20% private use
20 hours per week ÷ 25 hours per week = 80% work-related use.
The deduction for the desk and chair due to work related use is calculated as:
[$250 (desk) + $299 chair)] x 80% = $439.20
She uses the ATO’s depreciation and capital allowances tool to calculate the decline in value of her laptop using the diminishing value method.
Income year
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Opening adjustable value
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Decline in value
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Taxable use
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Deductible decline in value
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Adjusted value at the end of the year
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2022/23
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$1,499
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$870.65
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80%
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$696.52
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$628.35
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In her 2022/23 tax return, Pia includes a deduction of $1,510 for her working from home expenses is the total of:
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$375.20 additional running expenses
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$439.20 work related decline in value of the desk and chair, and
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$696.52 work related decline in the value of her laptop.
Although Pia uses her mobile phone for work when in the office, she cannot claim additional deductions for the work-related use of her phone.
Important point:
Without a record of actual WFH hours and the necessary documents supporting the deductions she wishes to claim under the revised fixed method, Pia cannot rely on PCG 2023/1. If the ATO Commissioner is not satisfied that Pia meets the requirements (for example she only estimates her WFH hours) it can deny a particular deduction. In this case Pia must use the actual costs method, including if she makes an objection where the ATO denies her deduction. She will be allowed a deduction based on the actual costs method if she is able to substantiate the additional expenses were incurred as a direct result of WFH.
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The actual cost method
Under this method the deduction is calculated using the actual expenses incurred to produce assessable income when working from home including:
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Decline in value of depreciating assets such as office furniture, laptop, phones or similar devices. The ATO depreciation and capital allowances tool may be used to calculate the deduction.
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Cleaning expenses – if a dedicated work area is set aside, take the total expense and multiply this by the total floor area of the work area divided by the whole floor area of the home. Then reduce the amount by the percentage of private use.
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Electricity and gas – work out the cost per unit of power, the average units used per hour, the power consumption per kilowatt hour for each appliance, equipment or light used, and the total annual hours used for work-related purposes according to the WFH hours for the whole income year.
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Phone, data and internet – work out the work-related use over a four-week representative period and use the work-related percentage for the representative period to calculate the deduction for the whole income year.
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Computer consumables – only claim the work-related portion of the expense.
The individual must record the number of actual WFH hours or work out a four-week representative period showing their usual pattern of work.
Is the expense deductible?
To claim a deduction under the fixed rate or actual cost method, the expense must have been:[1]
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incurred in gaining or producing the individual’s assessable income, or
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necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income.
The occasional phone call or random checking of emails will not qualify as WFH.
The expense must not be:
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capital in nature
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a domestic or private expense
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incurred in gaining exempt or non-assessable non-exempt income, or
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a prohibited deduction under another provision of the tax law.
If the individual sets aside part of the home to be used exclusively as a place of business (for example a doctor’s surgery) some expenses in respect of the home such as rent, interest, repairs, house and contents insurance, rates and property taxes may be partly deductible. [2]
Generally working from a private study at home will not qualify them to deduct these expenses unless there is no other alternative place of business and it is necessary to WFH. An example is where the employer does not provide the employee with a place to work, or where a professional (such as an architect) conducts a small private practice from home. Apportioning these deductions will be based on floor area and if the business is carried only for part of the year, on a time basis.
An additional running expense will be incurred where the individual actually paid for the expense or must ultimately pay the expense when it arises. Where a bill is in someone else’s name, the individual must retain proof that the individual paid for or contributed their share of the expense.
The individual must keep detailed records proving that the additional running expense was incurred because they worked from home. Bills, receipts and written evidence showing the additional amount spent, running expenses, depreciating assets purchased for WFH use, and the work related use of those assets during the income year in which the deduction is claimed must be kept.
Where an employer provides an allowance for WFH expenses the allowance is assessable income. If an expense is reimbursed to the individual it cannot be claimed as a deduction.
Decline in value of depreciating assets
While capital in nature, deductions for the decline in value over the effective life of a depreciating asset can be claimed separately if it is used by the individual when working from home.
Where the cost of a depreciating asset that is mainly used for work is less than $300, the total cost can be claimed in the income year it was purchased.
Where it is partly used in the gaining of assessable income the tax deduction can be claimed only for the work-related portion of the decline in value which must be apportioned in a fair and reasonable basis. For example, if an asset cost $200 and it was used 50% of the time for work-related purposes, the deduction that can be claimed is only $100 ($200 x 50%).
The ATO has a depreciation and capital allowances tool that can be used to calculate deductions for the decline in value of equipment, furniture and furnishings.
The individual must keep receipts showing the amount spent on the asset and records that demonstrate the work-related use of the asset during the income year. (See ‘When can an individual rely on PCG 2023/1?’ above).
[1] Section 8-1 of the Income Tax Assessment Act 1997
[2] Tax ruling TR 93/30 Income tax: deductions for home office expenses
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