Claiming home office expenses is a burdensome task for most taxpayers. Anyone who says otherwise probably isn’t claiming as much as they could, or isn’t substantiating their claim properly. This has become even more so with the introduction of the special COVID shortcut rate.
In our last section we learnt the foundational principles of home office expenses, but in this section, we go into detail on the calculation of these tax deductions. We will start with a comparison of the two hourly rates (fixed rate and shortcut rate) first and then will compare these against the final method (actual costs).
The below table outlines what is already included in the relevant rate and what can be claimed in addition to the hourly amount. Pay close attention to the differences in method.
Expense | Fixed Rate (52c/hour) | Shortcut Rate (80c/hour) |
Electricity/Gas | Included | Included |
Home Office Furniture | Included | Included |
Cleaning | Included | Included |
Phone Costs | Not Included | Included |
Internet Costs | Not Included | Included |
Office Equipment (computers, printers) | Not Included | Included |
Stationery/Ink | Not Included | Included |
When it was made available, many taxpayers flocked to the 80c/hour method because it appeared to give the greatest claim. They usually didn’t realise what they couldn’t claim by electing to use the shortcut method. Here’s an example:
Kathy works as an administration assistant and works from home 1 day a week. She took 4 weeks holidays throughout the year. Her log of hours shows that she has spent 388 hours working from home throughout 1st July 2021 – 30th June 2022.
She also incurs the following expenses:
- Stationery costs = $85
- Desk = $255
- Ergonomic Chair = $299
- Printer = $120 (her diary records indicate that she uses this 75% for work)
- Internet costs = $75/month (her logbook records indicate that she uses the internet 23% for work for the year
- Phone Costs = $65/month (her logbook records indicate that she uses her phone data 12% for work for the year
Expense | ​Fixed Rate (52c/hour) | ​Shortcut Rate (80c/hour) |
Hours | $201 | $310 |
Stationery Costs | $85 | $0 |
Desk | $0 | $0 |
Ergonomic Chair | $0 | $0 |
Printer | $90 | $0 |
Internet | $189 | $0 |
Phone | $85 | $0 |
Total | $650 | $310 |
Another example:
John works full time from home in an office that only he operates in. He takes 6 weeks of holidays throughout the year. His log of hours shows that he has worked 1,823 from home throughout the 2022 financial year.
He also incurs the following expenses:
- Stationery costs = $120
- Internet costs = $60/month (his logbook records indicate that he uses the internet 43% for work for the year). His employer reimburses him for 30% of his internet bill.
- Phone Costs = $80/month (his logbook records indicate that he uses his phone data 6% for work for the year
​Expense | Fixed Rate (52c/hour) | Shortcut (80c/hour) |
Hours | $947 | $1,458 |
Internet | $81 | $0 |
Phone | $50 | $0 |
Total | $1,078 | $1,458 |
The records required for the above examples can be quite stringent depending on what you are claiming. Maintaining receipts are always a great idea. For amounts requiring a percentage, generally a log book spanning a 4-week representative period is the best way to determine your work-related percentage. This could involve time, or consumption based off a value (gigabytes of data, phone calls etc).
Actual Costs
The other method used for claiming home office expenses is a bit more complicated and involves more work to be calculated. This method is generally the preferred method when significant working from home is present with many appliances/electrical equipment being in use as it tracks the actual electrical usage.
If you are considering claiming this method then it might be wise to get in touch with a qualified tax accountant to discuss your position and the work needed to maximize your home office claim.
The general premise is that each appliance’s electrical output is gauged against the amount of hours it was in use and the consumption cost of your electrical provider. This tends to give a much more accurate depiction of the energy costs you have consumed for business/work related uses. Of course, other expenses you incur whilst working from home may also be deductible under this method as well.
A final example:
Marie is required to work from home for the 2022 financial year at 3 days per week (22.8 hrs/week). She has a dedicated work area in her home. She incurs the following additional expenses:
- Stationery/Consumables = $50
- Chair = $225
- Desk = $170
- Internet costs = $70/month (her logbook records indicate that she uses the internet 36% for work for the year
- Phone Costs = $30/month (her logbook records indicate that she uses her phone data 18% for work for the year
She also has kept a detailed log of the following appliances used in her office:
- Downlights x3 – 50 watts each
- Computer – 200 watts
- Air Conditioner, used all day for 18 weeks of the year – 2600 watts
Her electricity bill shows a consumption rate of 0.2321 per kWh.
Expense | Fixed Rate (52c/hour) | Shortcut (80c/hour) | Actual Costs |
Power Costs | $569 | $875 | $336 |
Stationery Costs | $50 | $0 | $50 |
Desk | $0 | $0 | $200 |
Chair | $0 | $0 | $175 |
Internet | $277 | $0 | $277 |
Phone | $59 | $0 | $59 |
Total | $955 | $875 | $1,097 |
Home office expenses vary greatly between individuals and in the method that is chosen. No one format is always correct or preferred as the situations between taxpayers vary greatly. On numerous occasions I have seen people come into the office with their pre-determined calculations for their home office usage only to be found to be incorrect on my review. Generally, this has drastically changed the amount that can be claimed, for better or for worse. Calculating and claiming work from home expenses can be a challenging ordeal and, in most cases, is made a lot simpler by getting in touch with a qualified tax agent, such as Maurer Taxation, to get the best result for you. Contact us today for a free quote on your tax return(s).
March 2023 EDIT:
The ATO has finalised PCG 2023/1 which transitions the fixed rate method to a new $0.67/hour method. This new method includes internet costs, phone costs, stationery, computer consumables, and energy costs, whereas previously the fixed rate method allowed supplementary claims for internet and phone costs. While this appears to be a positive change, taxpayers should be aware of potential pitfalls, such as the need to keep accurate records of hours worked from home.
While previously the fixed rate method allowed a supplementary claim to be made for internet and phone costs, this new method will mean that no additional claim can be made for these items. Amongst other potential pitfalls is the substantiation requirements which requires taxpayers to maintain a record of actual hours worked from home. From 1 July 2022 - 28 February 2023 you are expected to keep a reasonable record of the amount of hours worked from home. From 1 March 2023 - 30 June 2023 you are expected to keep a record of every hour worked from home.
These changes will significantly impact the 2023 financial year and may affect millions of Australians who find themselves working from home in the post-pandemic world. At Maurer Taxation, we are committed to helping our clients claim the maximum deductions available to them when lodging their tax returns. Contact us to ensure you are well-informed and prepared to navigate these changes.