Tax deductions for working from home – what’s changed?

Deductions for working from home expenses can be calculated based on actual costs incurred or by using the “fixed rate” method. A revised fixed rate of 67 cents per hour applies from 1 July 2022.

The revised fixed rate method

The Australian Taxation Office has issued guidance (PCG 2023/1) that sets out a revised fixed rate method for calculating a deduction for expenses incurred as a result of working from home.

The revised fixed rate of 67 cents per hour covers additional expenses incurred in relation to:

• Energy (electricity and gas) 
• Internet usage
• Mobile and home phone usage
• Stationery and computer consumables

Depreciation deductions for assets used while working from home, such as a computer, desk or office chair, are not included under the revised fixed rate and may be claimed separately.

The revised fixed rate also does not cover occupancy expenses (e.g. rent and mortgage interest). However, such expenses are not usually deductible for the typical employee working from home. 

What’s changed?

Before 1 July 2022, taxpayers could calculate their home office running expenses using a fixed rate of 52 cents per hour under PS LA 2001/6. A temporary shortcut method in PCG 2020/3 also allowed taxpayers to claim deductions for additional running expenses incurred while working from home due to COVID-19, using a rate of 80 cents per hour from 1 March 2020 to 30 June 2022.

The range of expenses covered by the revised fixed rate method differs from its predecessors. The revised fixed rate method also no longer requires taxpayers to have a dedicated home office to be able to use the fixed rate.

Taxpayers must also satisfy changed record-keeping requirements to use the revised fixed rate. Actual records of all hours worked from home for the entire income year must be kept – an estimate or four-week representative diary will no longer be accepted from 1 March 2023. 

For each expense incurred that is covered by the revised fixed rate, taxpayers must keep one bill or invoice evidencing the additional running expense incurred.

Other considerations

The revised fixed rate cannot be used if a deduction is claimed separately for any of the expenses covered by the rate. Likewise, taxpayers who have not kept evidence of their total hours worked from home or of each running expense incurred are also unable to rely on the revised fixed rate. 

Irrespective of whether the actual cost or revised fixed rate method is used, employees who purchase an asset costing more than A$300 for work purposes cannot claim a full deduction immediately.

A taxpayer also cannot rely on the revised fixed rate if they lodge an objection in relation to their working from home expenses. In this case, a deduction will only be allowed for actual expenses incurred while working from home for which adequate records have been kept.

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