Working from home has become a common practice, especially in light of the changes introduced in the 2023 financial year. However, navigating the deductions associated with this setup can be a bit complex.
In this guide, we’ll explore what you can claim and how to do it effectively to optimize your tax benefits.
Eligibility for Deductions
To be eligible to claim deductions for working from home expenses, you need to meet the following criteria:
- Additional Running Expenses: You must incur additional running expenses as a direct result of working from home.
- Employment Duties: You must be working from home to fulfill your employment duties.
- Time Records: Keeping accurate records of the time you spend working from home is crucial to substantiate your claim.
Methods for Calculating Expenses
There are two main methods for calculating your working from home expenses: the fixed rate method and the actual cost method. Both methods allow you to claim deductions for specific expenses, but they have distinct rules and considerations.
Revised Fixed Rate Method
The fixed rate method has been revised, allowing you to claim 67 cents per hour worked from home. Unlike previous methods, you don’t need a dedicated home office to use this approach. It covers the following expenses:
- Internet
- Mobile and home phone usage
- Electricity and gas
- Computer consumables (e.g., printer ink)
- Stationery
Importantly, you cannot claim a separate deduction for any of the expenses included in the fixed rate. The 67 cents per hour rate is intended to encompass all these costs. However, you can claim separate deductions for:
- Decline in value of assets used while working from home (e.g., computers and office furniture)
- Repairs and maintenance of these assets
- Cleaning expenses (applicable only if you have a dedicated home office).
Actual Cost Method
The actual cost method enables you to claim deductions based on the actual expenses you incur due to working from home. This may include all the expenses listed above under the fixed rate method, as well as any maintenance and repairs for these items. The actual cost method requires meticulous calculations and record-keeping. You’ll need to know and document the cost per unit of electricity and the average units used per hour, among other details.
Records You Need to Keep
Maintaining proper records is paramount when claiming working from home deductions. Without records, you won’t be able to substantiate your expenses, and your claims may not be accepted.
For the “fixed rate method”, you should keep records of all the hours you worked from home throughout the entire year (e.g., timesheets, rosters, diaries). Additionally, retain evidence that you paid for the expenses covered by this method.
With the “actual cost method”, detailed records are essential. This includes all receipts, bills, or invoices related to your expenses. You should also document your personal and work-related use of the items or services you purchase and use.
In conclusion, understanding the options available for claiming working from home deductions and maintaining accurate records is crucial to optimizing your tax benefits. Whether you choose the fixed rate method for simplicity or the actual cost method for accuracy, ensuring compliance and meticulous record-keeping will help you make the most of your tax deductions.