With the rise of remote work, many individuals are looking to claim home office deductions on their tax returns. The ATO has provided clarity on how to approach these claims, focusing on two primary methods: the Revised Fixed Rate Method and the Actual Cost Method. Here’s what you need to know.
Understanding the Revised Fixed Rate Method
Since 1 July 2022, individuals have been able to claim 67 cents per hour for home office running expenses using the Revised Fixed Rate Method. This method simplifies the process by covering costs related to electricity, gas, phone usage, internet, stationery, and even the decline in value of office furniture. But what exactly does this entail?
- No Minimum Hours Requirement: There’s no set number of hours you need to work from home to be eligible for this method. However, you must be performing genuine work activities—not just checking emails or taking occasional calls.
- Eligibility Requirements: To use this method, you must meet these conditions:
- You perform substantial work or business activities from home.
- You incur additional running expenses due to working from home.
- You keep accurate and contemporaneous records of the hours you’ve worked from home.
- Record Keeping: The ATO emphasizes the importance of maintaining detailed records of the hours you work from home. Whether you use a diary, spreadsheet, rosters, or timesheets, it’s crucial to log your start and finish times for each workday. Note that estimates or sample periods are no longer accepted, apart from a transitional period that has now ended.
Actual Cost Method: An Alternative Approach
For those who prefer the Actual Cost Method, this approach allows you to claim specific home office running expenses based on the actual costs you incur. This includes expenses like electricity, gas, and a portion of your mobile phone and internet bills. However, this method comes with its own set of challenges, particularly in terms of accurately apportioning the costs between work and private use.
- Apportioning Mobile and Internet Costs: If you choose the Actual Cost Method, you may also be entitled to claim deductions for your mobile phone and internet usage. The key here is to correctly apportion the costs between work-related and private use. The ATO suggests keeping a diary over a continuous 4-week period to track the type of calls you make and the time spent using the internet for work versus private purposes.
- Detailed Record Keeping: As with the Revised Fixed Rate Method, accurate record-keeping is essential. Make sure to keep receipts, invoices, and detailed records of your home office expenses to substantiate your claims.
Occupancy Expenses: What You Can’t Claim
While home office deductions can help reduce your taxable income, it’s important to note that certain expenses are typically not deductible for employees. These include occupancy expenses such as rent, mortgage interest, and home insurance. The only exception is if your home qualifies as a ‘place of business’—a scenario that’s less common for most employees.
For instance, if you’re running a business from home and your home office is your principal place of business, you may be eligible to claim a portion of your rent or mortgage interest. However, this comes with its own set of criteria, and it’s advisable to consult with a tax professional to determine your eligibility.
Navigating home office deductions can be complex, but with the right information and careful record-keeping, you can maximize your tax deductions. Whether you choose the Revised Fixed Rate Method for its simplicity or the Actual Cost Method for potentially higher deductions, it’s crucial to stay compliant with ATO guidelines.
If you have any questions or need further assistance with your home office deductions, feel free to reach out to our team at Business Edge Advisors. We’re here to help you make the most of your tax return while ensuring that you remain compliant with the latest tax regulations.
