Claiming work-related expenses is an area where taxpayers frequently make mistakes, and the ATO has flagged it a primary area of focus for tax time 2024. More than eight million taxpayers claimed a work-related deduction in 2023, with around half of those claiming a deduction related to working from home costs, so it’s clear that understanding the methods for calculating working from home deductions is important to help taxpayers avoid incorrect claims and get their lodgment right the first time.
“Copying and pasting your working from home claim from last year may be tempting, but this will likely mean we will be contacting you for a ‘please explain’”, ATO Assistant Commissioner Rob Thomson has said. “Your deductions will be disallowed if you’re not eligible or you don’t keep the right records.”
There are two methods for calculating work from home expenses: the actual cost method and the fixed rate method. Both methods require keeping detailed records and following the ATO’s three golden rules: the money must have been spent by the taxpayer without reimbursement, the expense must be directly related to earning their income, and the taxpayer must have a record to prove the expense. The two methods can’t be used in combination – you need to pick one or the other each year – so it’s important to consider which method will best suit your individual circumstances. To be eligible to claim working from home expenses by either method, when working from home you must be fulfilling employment duties (not just minimal tasks like taking calls or checking emails); incur additional running expenses as a result of working from home (eg increased electricity or gas costs for heating/cooling or lighting); and keep detailed records showing how these expenses were incurred.