Home office deductions – short-cut method, not so short any more.

Do you work from home? The ATO has made changes to the way you can claim deductions for this. Effective for FY2023, two of the three previous methods - the shortcut method ($0.80 per hour) and the old fixed rate method ($0.52 per hour) - are no longer available.

We now have a new fixed rate - $0.67 per hour. Being a shortcut method, this covers energy (electricity and gas), phone usage (both mobile and home), internet costs, and stationery along with computer supplies. So if you opt to use this method, you can't additionally claim deductions for any actual expenditure for these costs.

Interestingly, the revised fixed rate method now covers phone usage and internet expenses, which were previously excluded from the former $0.52 rate. If you use your mobile phone for work both at home and outside, you cannot claim a separate deduction for its use while still utilizing the fixed rate method. If you want to claim the specific usage of your mobile phone or home internet, you need to use the actual costs method for all your work-from-home expenses.

The actual costs method – unchanged for FY2023 - does allow for separate claims in cases of asset depreciation, repairs, and maintenance of items used for work at home, such as computers and office furniture, as well as expenses related to cleaning a dedicated home office space. Actual costs of internet and mobile, electricity, and rent in some cases, can be claimed. However, to employ this method, you must have a distinct home office area. Back to the new shortcut fixed rate - surprisingly, having a dedicated home office space isn't necessary to claim deductions under the revised fixed rate method. Whether you work from the kitchen, living room, or another part of your home, you can claim deductions under this method.

As with all tax deductions, record-keeping is of utmost importance. Starting March 1, 2023, you must keep a record of all hours worked from home for the entire income year. For the period between July 1, 2022, and February 28, 2023, a 4-week representative diary or similar document suffices. The ATO won't accept estimates or representative diaries for periods beyond March 1, 2023.

Your records need to detail each expense covered by the fixed rate. For instance, if you use both your phone and electricity while working from home, you must keep a copy of a bill for each of these expenses. So in other words, you need to have actually incurred home office expenses.