5 Incredible Ways to Maximise Your Working From Home Deductions in Australia
Working from Home Deductions in Australia are no longer a secret weapon reserved only for savvy tax planners. With the aftermath of COVID-19 pandemic propelling more of us to pivot our workspaces into our homes, understanding how to leverage these deductions is a crucial step towards optimising your tax return.
In this comprehensive guide, we’ll reveal the top 5 ways to maximise your home office deductions for the fiscal year 2023.
1. Knowing your Eligibility
Before you delve into the complex world of home office expenses at the ATO, it’s essential to understand if you’re eligible for these deductions. To claim the ATO work from home deductions for 2023, you must incur additional costs that aren’t reimbursed by your employer while performing your work duties from home.
Work From Home Deductions Claim Changes For 2023
For the 2022-23 income year in Australia, the methods available to calculate working from home deductions are the revised fixed rate method and the actual cost method. The actual cost method remains unchanged, but the revised fixed rate method has been updated to reflect contemporary working from home arrangements.
The revised fixed rate method:
- Has increased from 52 cents to 67 cents per hour worked from home.
- Removes the requirement to have a dedicated home office space.
- Calculates the claim for electricity and gas, phone and internet usage, computer consumables, and stationery.
- Allows taxpayers to separately claim the work-related portion of the decline in value of depreciating assets such as office furniture and technology.
This method can also be used by businesses that operate some or all of their business from home to claim home-based business expenses.
Records You Need To Have:
If you plan to use the revised fixed rate method for your 2022-23 tax return, you need to have:
- From 1 July 2022 to 28 February 2023, a record which is representative of the hours you worked from home.
- From 1 March 2023 to 30 June 2023, a record of the total number of hours you worked from home (such as a timesheet, roster, or diary) as well as evidence you paid for each of the expenses you incurred that are covered by the fixed rate method (for example, a phone or electricity bill). You will also need records for any equipment you bought to work from home, like technology or furniture, which provide details of the supplier, cost, and date acquired.
2. Differentiating Between Deductible and Non-deductible Expenses
Claiming deductions isn’t a blanket action. Certain expenses can be claimed, while others can’t. Costs such as phone and internet expenses, electricity for heating, cooling, and lighting your workspace are all part of working from home deductions Australia. On the contrary, general household items such as coffee, tea, and toilet paper aren’t deductible.
These are expenses that you incur to work from home such as:
- Stationery and office supplies: This could include items like paper, pens, and other office supplies necessary for your work.
- Energy Expenses: This includes electricity or gas costs for heating, cooling, and lighting.
- Home and Mobile Internet or Data Expenses: The cost of your internet service could be deductible, particularly if you need a high-speed connection for your work.
- Mobile and Home Phone Expenses: If you use your phone for work calls, a portion of your phone bill might be deductible.
- Depreciating Assets: This could include office furniture like chairs and desks, and equipment such as computers, laptops, and software that you use for work. You can claim the decline in value of these assets.
- Repairs and Maintenance to Depreciating Assets: If you have to repair or maintain any of your work-related equipment, those costs might be deductible.
- Occupancy and Cleaning Expenses: In limited circumstances where you have a dedicated home office, you may also be able to claim expenses such as mortgage interest or rent, and cleaning expenses.
However, it’s important to note that if your employer pays you an allowance to cover your working from home expenses, you must include it as income in your tax return1.
There are also certain expenses that you can’t claim a deduction for. These include:
- Coffee, Tea, Milk and Other General Household Items: Even if your employer may provide these at work, you can’t claim them as a deduction.
- Costs That Relate to Your Children’s Education: This includes equipment you buy, such as iPads and desks, and subscriptions for online learning. These are not considered work-related expenses and therefore are not deductible.
- Items Your Employer Provides: If your employer provides you with a laptop or a mobile phone, for example, you can’t claim these items as a deduction.
- Expenses Where Your Employer Reimburses You for the Cost: If your employer reimburses you for any work-related expense, you can’t claim it as a deduction on your tax return.
3. Understanding the Shortcut Method
The Australian Taxation Office (ATO) introduced the shortcut method to simplify working from home tax deductions during the COVID-19 pandemic.
Under this method, you can claim 80 cents per work hour for all your running expenses, negating the need for detailed calculations or records. However, this method was only applicable:
- Between 1 March 2020 to 30 June 2020 in the 2019–20 income year
- For the 2020–21 and 2021–22 income years.
Starting from the 2022–23 income year, this method is no longer available. Instead, taxpayers can use the Revised Fixed Rate Method or the Actual Cost Method to calculate working from home deductions.
4. Using the ATO Working from Home Calculator
Do you find the process of calculating your work from home deductions daunting? The ATO has you covered! With the ATO working from home calculator, you can easily estimate your home office expenses.
5. Building Your Home Office
Interestingly, if you’re planning on building a home office, you could be eligible for a building a home office tax deduction in Australia. This could be a game-changer for your tax planning!
By implementing these five strategies, you’ll not only demystify the complexities around claiming working from home tax deductions, but you’ll also be well on your way to optimising your tax return for 2023.
Understanding and effectively utilising the work from home deductions in Australia can have a significant impact on your 2023 tax return. It can reduce your taxable income and lead to substantial savings. So, why wait? Start planning now and make the most of your tax return!
Ready to start making smart tax decisions? Contact Odin Tax today for a personalised consultation and make the most of your 2023 tax year.
Frequently Asked Questions (FAQs)
Working from home tax deductions are expenses that can be claimed on your tax return for costs incurred while working from home.
The ATO allows a flat rate of 80 cents per work hour to be claimed for all additional running expenses for the period 1 March 2020 to 30 June 2020 due to COVID-19.
You can use the ATO’s Home office expenses calculator available on their website to calculate your deductions.
The specific deductions for 2023 have not been released yet. However, you can generally claim the work-related portion of your running expenses, such as phone and internet expenses, computer consumables, stationery, and decline in value of equipment and furniture.
Yes, you can claim a deduction for the costs associated with a home office, including building costs, as long as the office is used solely for earning income and doesn’t form part of your dwelling.
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