Working from home – tax and record keeping
Working From Home Deductions: What’s Changed and What To Do Now
From 1 July 2024 the ATO’s fixed rate deduction for working from home (WFH) running expenses is 70 cents per hour. In a frustrating approach by the ATO, estimates are not acceptable and you must keep contemporaneous records of actual hours for the whole year along with supporting copies of example invoices. ATO – difficult by design?
If you want to claim for working from home this is now a year round record keeping project. Scraping together information for tax time is unlikely to meet the ATO record keeping requirements.
Two Ways to Claim (neither of them easy)
- Fixed-rate method: multiply hours worked from home by the ATO rate for that year and add eligible separate items (see below).
- Actual cost method: claim the work-related portion of each expense with full evidence.
What the Fixed Rate Covers
Energy (electricity/gas) for lighting, heating/cooling, and devices used while working.
Internet.
Mobile and/or home phone usage.
Stationery and computer consumables.
You can’t claim these items again separately if you use the fixed-rate method.
What You Can Still Claim Separately
Decline in value (depreciation) of work-related equipment and furniture, plus repairs and maintenance on those assets.
In limited cases with a dedicated home office, some occupancy and cleaning costs may be deductible (apportioned).
Who Can Use the Fixed Rate
You must be working from home and incurring additional running expenses. Unlike the actual cost method, a dedicated home-office room is not required. More than one person in the same home can each claim if they separately meet the rules.
Record Keeping
A contemporaneous record of actual hours worked from home for the entire income year (for example, timesheets, rosters, access logs, time-tracking app, or a diary). We understand that practically you may work say an average of 4hrs per week for 40 weeks a year for 160hrs of working from home but the ATO guidance is clear that estimates are not acceptable and a contemporaneous record must be maintained. Unfortunately we don’t make the rules…!
At least one bill/receipt for each covered expense type (for example, one electricity bill; one internet bill; one phone bill; receipts for stationery/consumables).
If a bill isn’t in your name, keep extra proof that you incurred it (for example, joint statement or lease).
Keep records for five years; keep asset records for as long as you claim decline in value.
- Contemporaneous – meaning in real time. If you are audited and you whip up a spreadsheet to show your work from home hours and your file metadata shows a creation date after the audit commenced you have moved from a small tax issue to a serious penalty for intentional misstatement. We haven’t seen this happen, but we also don’t want any of our clients to be the first.
Quick Example
20 hours per week for 40 weeks = 800 hours.
2024–25 claim at 70 cents = $560. At a 39% marginal rate, tax saved ≈ $218.
- That is a lot of record keeping and substantiation for a $218 tax saving. In our view the ATO have designed this to be difficult.
Actual cost method
Similar to the Fixed Rate Method but with tighter rules and more record keeping. You need a dedicated work space that is not available for common use.
The ATO provides an example of how you can calculate your electricity use.
You can work out the cost of your electricity and gas (energy expenses) for heating, cooling and lighting by using the:
- cost per unit of power you use (your utility bill has this information)
- average units you use per hour, which is the power consumption (this information may be found in the manufacturer information, the star energy rating label or by searching the internet) and is
- per kilowatt (kw) hour for each electrical appliance, equipment or light you use
- per megajoule (MJ) hour for gas heating appliances you use
- total annual hours used for work-related purposes by checking your record of hours worked or your diary.
For full ATO guidelines, see here
Be careful that where you own your home and use it as a place of business there are scenarios where your primary place of residence CGT exemption may not fully apply on sale of your home. Saving a few hundred dollars in tax per year may be a high price to pay compared to paying partial capital gains tax on the sale of your home.
Next Steps
Start/continue a daily hour log (timesheet/diary/app) now.
Save at least one current bill/receipt for each covered expense category and keep asset purchase documents.
- For actual cost method, create a detailed methodology for tracking your hours, actual costs and record keeping process
We don’t want you paying any more tax than you absolutely must, so we’ll be happy to include your claim in your tax return if you have the appropriate records to meet the ATO requirements. But sometimes you might also choose to accept that life is short, your time is valuable and your return on effort for this deduction may be better invested enjoying life without a work from home tax deduction.
