The Australian Taxation Office (ATO) has updated its
approach to how you claim expenses for working from home.
The ATO has ‘refreshed’ the way you can claim deductions for the costs you incur when you work from home. From 1 July 2022 onwards, you can
choose either to use a new ‘fixed rate’ method (67 cents per hour), or the ‘actual cost’ method depending on what works out best for your
scenario. Either way, you will need to gather and retain certain records to make a claim.
The first issue for claiming any deduction is that there must be a link between the costs you incurred and the way you earn your income. If
you incur an expense but it doesn’t relate to your work, or only partially relates to your work, you cannot claim the full cost as a
deduction.
The second key issue is that you need to incur costs associated with working from home. For example, if you are living with your parents and
not picking up any of the expenses for running the home then you can’t claim deductions for working from home as you have not incurred the
expenses, even if you are paying board (the ATO treats this as a private arrangement).
Let’s take a look at the detail:
Some people might find that the actual method produces a better result if their expenses are higher. As the name suggests, you can claim the actual additional expenses you incur when you work from home (and reduce the claim by any personal use and use by other family members).
However, you will need to ensure you have kept records of these expenses and the extent to which the expenses relate to your work.
Using this method, you can claim the work related portion of:
Be careful with this method because the ATO are looking closely to ensure these expenses are directly related to how you earn your income.
For example, you can’t claim personal expenses such as coffee, tea and toilet paper even if you do use these items when you are at work.
Nor can you claim occupancy expenses such as rent, mortgage interest, property insurance, and land taxes and rates unless your home is
a place of business. It is unusual for an employee’s home to be classified as a place of business.
\Where your home is also your principal place of business and an area is set aside exclusively for business activities, you can potentially
claim a deduction for an appropriate portion of occupancy expenses as well as running costs. An example would be a doctor who runs their
surgery from home.
The doctor may have one-third of the home set aside as a place of business where they see patients.
It is important to keep in mind that Capital Gains Tax (CGT) might be payable on the eventual sale of the home. While your main residence is normally exempt from CGT, the portion of the home set aside as a place of business will not generally qualify for the main residence exemption for the period it is used for this purpose, although if you are eligible, the small business CGT concessions and general CGT discount may reduce any resulting capital gain.
We provide strategic business and tax advisory, underpinned by our expertise in financial planning to ensure we develop financial structures that are smart and well considered.
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