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The ATO is cracking down on work-related expenses but many self-lodgers will still be in the dark about the revised method introduced in March, says HLB Mann Judd.
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Mid-year WFH changes ‘will catch out many taxpayers’
24 October 2023
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Mid-year revisions to work-from-home claims will be catching many taxpayers just as the ATO cracks down on work-related expenses, says an HLB Mann Judd specialist.
Sydney tax consulting director Bill Nussbaum said almost 5 million people claimed a WFH deduction last year and while it was too soon for this year’s numbers, many taxpayers would be unaware that the 80c-an-hour short-cut method had been discontinued.
With just days before the 31 October deadline for self-prepared income tax returns, Mr Nussbaum said the updated fixed rate method for WFH claims required a different approach.
“Taxpayers wishing to claim a WFH deduction can now only use the pre-existing fixed rate or actual cost methods,” he said. “A lot of people won’t be aware of the changes, which is concerning given the ATO has indicated work-related expenses are an area of focus this year.”
The 80c shortcut method, introduced during COVID-19, finished at the end of FY22 and a revised fixed rate method was introduced in March this year that raised the rate from 52c to 67c an hour.
Mr Nussbaum said the method had some advantages, as it took into account WFH running expenses such as phone and internet costs, electricity, gas and consumables, such as stationery items and other office equipment.
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“Most people WFH will apply the fixed rate method as it’s more straightforward,” he said.
“However, the 67c rate per hour is intended to cover a lot of expenses so you can’t then claim expenses in addition to this. Some may inadvertently claim expenses twice.”
The fixed rate method also requires an ongoing diary of hours worked from home, rather than indicative hours under the previous shortcut method.
Mr Nussbaum said the alternative, actual cost method might result in a higher deduction but could also be more technical and cumbersome.
“The actual cost method calculation requires a more granular level of detail, such as cost per unit of electricity, for example. This method also requires taxpayers to maintain records of various expenses during the year, and work-related usage,” he said.
The ATO had said it would allow taxpayers using the actual cost method to calculate WFH expenses using records for the entire year or over a four-week period that represents their pattern of work usage, in determining a percentage of costs.
Other tax lodgement considerations included claiming on depreciation of assets in WFH duties, which could include a desk, chair or other equipment and was available under both fixed rate and actual cost methods of calculating claims.
He said for anyone running a business from home, there were also occupancy costs, such as rent or mortgage repayments, council rates, insurance, water and land taxes.
“However, it’s important to be aware that if you do claim occupancy expenses, there will be CGT implications when you sell the property,” he said.
“Evidently, there are a number of areas for taxpayers, particularly those WFH, that need to be assessed in the lead up to the tax deadline.”
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