Working from home? The ATO has revealed new ‘fixed rate’ tax deductions, and stronger record-keeping rules

Australians who work from home and want to simplify their tax returns will soon need to record each hour they complete outside the office or worksite, thanks to a major update to how the Australian Taxation Office (ATO) calculates income tax deductions.

Following months of deliberation and consultation, the ATO on Thursday revealed long-awaited changes to the ‘fixed rate’ deduction.

Under the new ‘fixed rate’ scheme, taxpayers will be able to claim 67 cents per hour worked from home, up from 52 cents.

This rate covers ongoing expenses like phone bills, internet usage, and electricity expenses incurred while working from home.

Big ticket purchases, like new computers or office desks, can still be claimed separately.

The cost of cleaning at-home office areas, and repairs on work-related equipment, can also be claimed above and beyond the fixed rate.

In another significant development, taxpayers choosing the fixed rate will no longer need a dedicated office space, meaning those who regularly work from the kitchen table or bedroom will be free to claim 67 cents for every hour on the clock.

But in exchange for that expansion, the ATO will enforce strict record-keeping rules on claimants.

“From 1 July 2022 to 28 February 2023, we’ll accept a record which represents the total number of hours worked from home (for example a four-week diary),” ATO assistant commissioner Tim Loh said.

“From 1 March 2023 onwards, taxpayers will need to record the total number of hours they work from home.”

In addition to the upcoming register of each hour worked — and the four-week diary taxpayers will need to provide for the period of 1 July, 2022, to 28 February, 2023 — those using the fixed rate method will need to hold onto utility bills covering expenses incurred in the home office.

Notably, those changes only affect the fixed rate method.

The ‘actual cost’ method of calculating a tax deduction, in which taxpayers can forensically detail their at-home expenses and the proportion related to work, is unchanged.

Those using the ‘actual cost’ method can submit either detailed, hour-by-hour records, or a four-week diary summarising their working patterns

“No matter which method you use, make sure to keep records,” Loh said.

“This will give you more flexibility to choose the method that gives you the best deduction at tax time depending on your circumstances.”

“Big job” ahead for ATO on tax deduction awareness

The tweaks to the ‘fixed rate’ method come months after the temporary ‘shortcut’ method came to an end.

That method, which provided taxpayers a simplified, one-size-fits-all deduction rate of 80 cents per hour worked from home, was designed to make life easier for workers unexpectedly flung into remote work schedules by the COVID-19 pandemic.

The scheme wrapped up on June 30, 2022.

In its absence, accounting groups called for an update to the rules to provide certainty to the millions of workers who now operate partially or fully from home, even after the lifting of COVID-19 workplace restrictions.

“We’re glad the ATO has released guidance on this issue,” Elinor Kasapidis, senior manager of tax policy at industry group CPA Australia, told SmartCompany.

“Work from home arrangements affect millions of people and we have been waiting for this information.”

However, the tweaks fall short of CPA Australia’s favoured outcome: legislation underpinning the ‘fixed rate’ method, bringing it into line with ‘per-kilometre’ deductions for driving on the job.

The industry body also says the ATO’s retroactive approach to WFH diaries is likely to catch some taxpayers by surprise.

“Tax agents should let their clients know about these new arrangements as soon as possible so they aren’t left in the lurch at tax time,” Kasapidis said.

“The ATO has a big job ahead to ensure Australians are aware of their obligations.”