Working From Home - Tax Deduction Update

What's Changed?

From 1 July 2024, the ATO has increased the fixed rate deduction for working from home expenses from 67 cents to 70 cents per hour. While this update hasn't been prominently featured across the ATO's communications, it represents an important change for the millions of Australians who now regularly work from home.

What Does This Mean For You?

Let's break down what this 3-cent increase actually means in real terms: For someone working from home full-time (38 hours per week) over a standard work year (48 weeks), the fixed rate method would now provide:

• Previous rate: 38 hrs × 48 weeks × $0.67 = $1,221.12
• New rate: 38 hrs × 48 weeks × $0.70 = $1,276.80

That's an additional $55.68 in tax deductions annually. While every dollar of deductions helps, it's worth considering if this method truly reflects your actual working from home expenses.

Understanding Your Options

When claiming work-from-home expenses, you have two primary methods available:

1. The Fixed Rate Method (now 70 cents per hour)

This method covers:

• Electricity and gas for heating, cooling and lighting
• Decline in value of office furniture and furnishings
• Cost of repairs to home office equipment, furniture and furnishings
• Cleaning expenses

However, it does not cover:

• Phone expenses
• Internet expenses
• Computer consumables and stationery
• Decline in value of electronic devices

These additional expenses must be calculated separately.

2. The Actual Cost Method

This method requires you to calculate the actual costs of all your home office expenses, including:

• Utility bills (calculating the work-related percentage)
• Depreciation of office equipment and furniture
• Electronic devices and computers
• Phone and internet expenses
• Stationery and computer consumables
• Cleaning expenses

While this method requires more record-keeping, it often results in substantially higher legitimate deductions, particularly for those with a dedicated home office setup and significant technology requirements.

Making The Smart Choice

For many taxpayers, especially those with a well-equipped home office, the actual cost method can yield deductions significantly higher than the fixed rate method, often exceeding $2,000 annually for full-time home workers. Consider this: If you've invested in quality office furniture, maintain a dedicated work space, run heating or air conditioning during work hours, and use your own phone and internet for work purposes, the actual expenses method may better reflect your true costs.

For the Fixed Rate Method:

• A record of all hours worked from home (diary, timesheet, roster, or electronic tracking)
• Receipts for depreciating assets and expenses not covered by the fixed rate
• Records of phone and internet usage for work

For the Actual Cost Method:

• Receipts for all expenses claimed
• Evidence of how you calculated work-related percentages
• A floor plan showing your dedicated work area (for calculating utility percentages)
• Records showing how you calculated phone and internet work usage

Important Considerations

When claiming working-from-home deductions, it’s important to meet the basic requirements.

• You can use the fixed rate method (70c per hour) or the actual cost method for running expenses such as electricity, gas, and office furniture depreciation.
• You must keep a record of all hours worked from home throughout the full year (such as a diary, timesheet, or electronic record).

All expenses must be:

• Directly related to earning your income
• Paid by you and not reimbursed

Maintaining accurate records is essential to support your claim.

Getting Professional Advice

With the gap between the fixed rate method and potential actual expense claims, seeking professional tax advice is increasingly valuable. A bookkeeping.solutions specialist can:

• Help you determine which method will maximise your legitimate deductions
• Ensure you're maintaining proper records
• Identify deductions you might otherwise miss
• Provide guidance on setting up your home office for optimal tax treatment, particularly for claiming home occupancy expenses.

Remember, the cost of obtaining tax advice is itself tax-deductible, making professional guidance even more accessible.

The Bottom Line

While the ATO's increase to the fixed rate method is welcome, don't automatically assume it's your best option. Take the time to calculate both methods, maintain good records, and consider seeking professional advice to ensure you're not leaving money on the table.