Gone are the days when you had to commute to the office to do your job.

In today’s world, working from home (“WFH”) is embraced and loved by many (including myself)!

If your employer offers flexible work arrangements, you should consider yourself blessed. In fact, according to the Australian Bureau of Statistics, almost half of Australians (46%) WFH to some degree.

Whilst it sounds like a dream to work from the comfort of your home, navigating through the tax laws to calculate your WFH deduction might burst your dream bubble just a little, especially if you despise maths.

There are two methods the Australian Tax Office (“ATO”) allows for claiming WFH costs as a deduction in your tax return.

1. Revised Fixed Rate Method (the easy way)
2. Actual Cost Method (the hard way)

To claim a deduction under either method, you need to have paid the cost out of your own pocket.

Unfortunately, for those youngsters who still live with their parents free of charge, you can’t claim WFH costs if you aren’t the one paying the bills for the home.

Method 1: Revised Fixed Rate Method

This method replaced the previous ‘short-cut’ method, although the idea behind the two are very similar. Under the Revised Fixed Rate Method, you can claim $0.67 per hour you WFH during the financial year. Whilst this might not sound like much, if you WFH most days or full-time, this can add up to a fairly significant deduction.            

The $0.67 deduction assumes that by WFH, you have incurred additional running expenses for your home which you wouldn’t have incurred if you had worked from your employer’s office.

The additional running expenses that are covered under this method include:

• Data and internet
• Mobile and home phone usage
• Electricity and gas for heating, cooling and lighting  
• Computer consumables, such as printer ink and paper
• Stationery

By using this method, you can’t claim an additional separate deduction for incurring these running expenses. If you want to claim the actual costs of these deductions, you’ll need to use the Actual Cost Method which is covered later in this article.

However, you can claim a separate deduction for the depreciation on assets you’ve purchased for your home office, or for the purpose of WFH. The cost of the asset will determine how quickly you can claim a deduction for it.

• If the asset costs less than $300 (including GST), you can claim an immediate deduction in the year you purchase the asset. These types of assets would typically include office accessories, such as a mouse, keyboard, desk lamp etc.

• If the asset costs more than $300 (including GST), or the asset is bought as part of a set that all together cost more than $300, you will be able to claim a depreciation deduction for the asset over its useful life. These types of assets generally include items such as a computer, headset, and office furniture.

Keeping in mind, for both these cost categories, the deduction you can claim is capped at the work-related use percentage of the asset. Let’s look at a simple example which illustrates this.

Example of a Fixed Rate Method

You start a new job which is fully remote, and you need a new desk to work comfortably.

You purchase a desk for a bargain costing you only $250 (including GST). You use the desk between Monday to Friday solely for the purpose of completing your employment duties.

However, on the weekend, you use the desk for personal matters, such as online shopping, budgeting your family’s finances and paying your house bills.

This means the desk is being used for work-related matters 5/7 days of each week which equates to a deductible work-related use percentage of 71%.

‍Record Keeping Requirements for Work From Home Deductions

This method sounds easy enough to use, right? Well, it can be if you have kept good records throughout the year. There are strict record keeping criteria which you will need to adhere to.

This includes:

• Keeping a record of ALL the hours you worked from home during the year, for example, by keeping a timesheet or diary. Whilst this sounds like a very tedious process, it is worth the effort, especially if you WFH most days.

Wise tip: keep track of your WFH hours in an Excel document so you can easily sum your total hours at the end of the year with a simple formula (=sum).

• Evidence you paid for the expenses covered by the revised fixed rate method. For example, keep one electricity bill, one internet bill, and so on, to demonstrate that you are incurring these costs.

• Keep receipts of the assets you’re claiming a depreciation deduction for, such as the desk purchased in the example above.‍

‍Method 2: Actual Cost Method

The types of expenses you can claim as a deduction under this method include all the expenses covered under the Revised Fixed Rate Method, plus cleaning expenses for your dedicated home office (if you have one).

Calculating the costs under this method can be tedious and time consuming, particularly where you use items for both work and private use.

When it comes to trying to apportion expenses like electricity and heating for your WFH portion, the calculation for this can get a little mathematical.

It is worth mentioning that the Actual Cost Method is always available and was available before the Revised Fixed Rate Method was introduced.

‍Closing remarks

Let’s be wise about this. The Revised Fixed Rate Method is available for a reason. It’s a way to help you avoid all the additional administrative burden attached to using the Actual Cost Method.

In my opinion, the Actual Cost Method can prove to be challenging for most people to get right.

The decision is yours. Whichever method you choose, it is important to stay aware of changes to the WFH deduction rules as they may change each year as the business landscape navigates in this new way of working.  

As a Chartered Accounting firm and Registered Tax Agent, Hive Wise can help you with all your accounting and tax needs.

We’d love to be part of your business journey!

Contact us today for a free consultation.