Working from home? Tax time just got a lot trickier

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Taxpayers will have to go to a lot more trouble to claim working-from-home expenses in their returns this financial year, with the tax office ending the simple “shortcut” of claiming expenses at 80¢ for each hour.

Mark Chapman, director of tax communications at H&R Block, says the new flat rate of 67¢ an hour is not only lower but involves a lot more compliance to substantiate claims.

Changes to working from home expense claims will likely lead to lots of mistakes by those who do their own tax returnsCredit: Bloomberg

“The rules are inherently complicated and there are significant differences to prior years, both in terms of what you can claim and the amount of proof that you need to substantiate the claim,” Chapman says.

He is expecting many taxpayers who do their own tax returns will get it wrong and receive a “please explain” from the ATO.

The ATO introduced a temporary “shortcut” method for claiming work-from-home expenses during the peak of the COVID-19 pandemic to make it easier for those working from home to claim the expenses in their tax returns.

The shortcut “rate per hour” method allowed a claim of 80¢ for each hour worked from home. The short-cut method started from March 1, 2020, and was continued into the following financial year.

All a taxpayer needed to do was to keep a record of their hours worked at home in the period and multiply that by 80¢. The shortcut method ended on 30 June 2022, to be replaced by 67¢ fixed rate method for the current financial year.

From March 1, 2023, taxpayers must keep a complete record of all the hours they work from home for the period to June 30, 2023, which could be in the form of timesheets, rosters or a diary.

Before that date, the requirements are less onerous. Those using the 67¢ flat rate method only need to keep diary entries covering a four-week period during the period from July 1, 2022 to 28 February 2023, or some other proof – such as work rosters, timesheets – covering a four-week period, showing they were working from home.

To claim the 67¢ fixed rate you will need a copy of at least one bill for each type of working-from-home expense such as electricity, internet, phone, stationery and computer consumables.

The new fixed rate is available if you do not have a dedicated home office. Chapman says that means if you work from the kitchen table or the lounge sofa, you can still claim the fixed rate.

Chapman says if you live with your parents or others and do not pay a market rent to live in the property, you cannot claim.

“The ATO gives as an example, someone who lives with their parents and pays a token amount of board – they can’t claim even if they have a dedicated home office because they don’t incur any additional costs to work from home,” he says.

“The parent might well incur additional costs – but as they aren’t the ones working from home, they can’t claim,” Chapman says.

A taxpayer is always free to use the “actual cost” method – calculating the actual expenses incurred as a result of working from home. Though the substantiation documentation is more onerous than the fixed rate method, for some it can result in larger claims.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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