Major changes to work from home deductions – what you need to know

The ATO has recently announced major changes to the way remote workers can claim their taxable deductions, starting from March 1, 2023.

Until recently, remote workers could use various methods to calculate their work-related expenses including:

• The actual cost method which allows workers to claim taxable deductions based on the precise costs which have been incurred.
• The shortcut method of 80 cents per hour which was introduced as a temporary measure in 2020 and allows workers to claim a percentage of every dollar earned while working from home.
• The fixed rate method of 52 cents per hour which also allows workers to claim a percentage of every dollar earned while working from home.

Rate changes

The announced changes, which follow the recent phasing out of the popular shortcut method, will see an increase in the percentage of the fixed rate method from 52 cents per hour to 67 cents per hour, but with more stringent reporting requirements.

The ending of the shortcut method combined with these new changes is significant and will likely impact millions of Australian workers.

Expenses

It’s important to note that expenses like internet usage, phone bills, electricity and stationery are covered within the new fixed rate method. This means such expenses can’t be used for additional claims as was possible using the previous fixed rate method, although separate claims can still be made for items like computers, office furniture and repairs, maintenance, and cleaning.

Recordkeeping

Another key change is that from March 1, 2023, workers will no longer be able to rely on estimations or representations of hours worked. Previously, the ATO would accept a log or diary of a continuous four-week period which represented their usual pattern of work, but moving forward workers will now need to keep detailed records of the precise number of hours worked on a daily basis.

Home office

The ATO has also removed the requirement for remote workers to have a dedicated home office space when using the updated fixed rate method, saying the change would “better reflect contemporary working from home arrangements”.

What these changes mean for you

While the percentage increase in the fixed rate method will likely be welcomed news for many, it’s important to recognise that the changes mean a more onerous recordkeeping regime is required, starting from March 1, 2023.

Additionally, under the old, fixed rate approach of 52 cents per hour, expenses including utilities, mobile phone usage and internet costs could be claimed as additional expenses, but with the introduction of the new rate this is no longer possible. As such, this may results in a reduced tax return for workers who choose to use the new fixed rate method.

Workers can also consider opting for the actual cost method which remains unchanged however, this method comes with its own considerations and also requires detailed record keeping of hours worked, expenses and receipts.

How Falanga and Co can help

With millions of Australians working from home or in hybrid-roles, the announced changes will have far-reaching consequences for many.

If you are unsure or unclear about how these changes may affect you, then we’re here to help.

Please get in touch today if you have any questions or concerns.