Proposed work-from-home tax changes would mean lower deductions or more paperwork

People working from home would lose hundreds of dollars in tax deductions if new draft guidelines released by the Australian Tax Office are adopted.

Under the proposed changes, those working from home would not be able to claim expenses such as internet, electricity and mobile separately using the popular shortcut method, which sets out a flat rate for hours worked at home, rather than calculating the actual costs.

Before the Covid pandemic measures were put in, people could claim 52 cents as a fixed rate for the hours they worked from home, claiming each of the designated expenses separately. During the pandemic, an 80 cents flat rate was temporarily introduced which bundled those expenses.

The draft guidance cuts the shortcut rate to 67 cents, but again bundles the expenses together.

If adopted, it leaves people who work from home with two choices – they can either claim the “actual” expenses incurred, which would require meticulous paperwork, or claim the 67 cents flat-rate shortcut, which would mean foregoing separate claims on expenses such as stationery, communications and power.

Tax giant H&R Block estimated this new calculation would cut the deduction of someone who worked from home for six months from $1,309 under the 52 cents individual claim shortcut in place before the pandemic, to $643.20.

H&R Block director of tax communications, Mark Chapman, said many taxpayers would miss out on deductions they previously could have made.

“The new fixed rate includes costs such as mobile phones and stationery – meaning that many taxpayers could lose out,” he said.

“After all, if you use your mobile phone extensively for work – both at home and when you’re out and about – you could potentially claim several hundred dollars just in mobile phone bills. If you use the fixed rate method, you’ll lose this opportunity. But if you don’t use the fixed rate method, you’ll be forced to claim actual costs for other working from home expenses (such as electricity and gas), which means that you need to keep lots of paperwork such as receipts/invoices.”

He said keeping those records was time-consuming and onerous.

“Claiming ‘actual costs’ isn’t feasible for many taxpayers – the record-keeping obligations are just too high,” Chapman said.

“Therefore, for millions of people, they will be forced to claim the 67 cent/hour fixed rate, which could result in a lower deduction and increased paperwork.”

Separate deductions for office equipment and furniture under $300 are still able to be claimed for the first year.

The draft guidance, released this week, is backdated to July 2022 when the Covid pandemic provisions ended, and if adopted would affect tax returns from next July.

A spokesperson for the ATO said the draft compliance measure was an attempt “to better reflect contemporary working arrangements”.

“The fixed rate method is intended to provide a proxy methodology to help taxpayers manage what can be complicated apportionment calculations for common costs incurred when working from home,” the spokesperson said.

“It should be remembered that the fixed rate method is just one way to calculate working from home deductions and is optional. Taxpayers have always been able to, and continue to be able to, choose to claim a deduction for their actual costs, which might work out better for them, especially if their deductible costs are very high.”

Under the draft guidance, the ATO has scrapped the need to have a dedicated home office space in order to claim working from home deductions, but it has also tightened up the compliance requirements. Workers will not only have to have a record of their time spent working from home, they will also have to have evidence of the additional running expenses, such as the energy, phone and internet bills.

During the pandemic, workers claiming the 80 cents shortcut fixed rate only had to keep a record of hours worked.

The ATO has opened the draft up for public consultation with submissions open until 30 November.