There are Changes to the Working From Home Expense Methods 2022-23

On Thursday 3 November 2022, the ATO announced draft changes to the work from home expense claim methods.  

The draft Practical Compliance guideline (PCG) released, outlines a new method called the revised fixed rate method for claiming a deduction for working from home expenses in 2022-23.

The Changes Summarized

  • A NEW $0.67 cent fixed rate method has been introduced with significant changes to what you can and cannot claim as well as extra record keeping requirements.
  • The existing $0.52 cent fixed rate method has been revised and will not be available for use in 2022-23.
  • Shortcut method of $0.80 cent per hour has ended (i.e., it cannot be used to calculate a deduction for 2022-23). This means that the existing fixed rate deduction method has been revised.

Revised Fixed Rate Method

More specifically the revised fixed rate method provides a $0.67 cent deduction for each hour worked from home.

This rate per hour covers expenses included in the revised fixed rate:

  • Data and internet
  • Mobile and home phone usage
  • Electricity and gas
  • Computer consumables (printer ink)
  • Stationery

What is very important to note, is that you will not be eligible to claim a separate deduction for any expenses included in the revised fixed rate method.

However, you can claim a separate deduction for:

  • The decline in value of assets used while working from home, such as technology and office furniture, as well as any repairs and maintenance of these items
  • Other working expenses you incur because of working from home which are not covered by the rate per hour
  • Cleaning (only if you have a dedicated home office)

Actual Cost Method

The actual cost method allows you to claim a deduction for the actual expenses you incur as a result of working from home.

You may be able to claim a deduction for each of the expenses you incur, such as:

  • Data and internet
  • Mobile and home phone usage
  • Electricity and gas
  • Computer consumables (printer ink)
  • Stationery
  • The decline in value of assets used while working from home, such as computers and office furniture, as well as any maintenance and repairs of these items
  • Cleaning (only if you have a dedicated home office)

The actual cost method requires detailed calculations and records. For example, you will need to know and have records of the cost

The Records Needed for this Change

Additional record keeping and evidence requirements have been set down by the ATO for those who wish to use this new method.

Revised Fixed Rate Method

To claim working from home expenses using the revised fixed rate method, you will need the following records:

  • A record of all the hours you work from home for the entire year (timesheet, roster, diary). Note that for 2022-23 a transitional timekeeping arrangement is available.
  • Evidence you paid for the expenses covered by the revised fixed rate method (for example, if you use your phone and electricity when you work from home, keep one bill for each of these expenses).

You will also need records for items you claim as a separate deduction.

Actual Cost Method

You will need to keep a record for every expense you claim.

Running expenses

You need the following evidence to show you incur additional running expenses:

  • Receipts, bills or invoices which show the supplier, amount of the expense, nature of the goods, date it was paid and the date of the document
  • Evidence of your personal and work-related use of the items or services you buy and use.

You can work out your work-related expenses using records for the entire year or over a 4 week period that represents your work use – for example, using a diary or itemized bill.

Thinking About Becoming A Contractor? ABNs, Sham Contracting, Agreements And More…

Being a contractor offers flexibility, choice and more control over your own schedule. It also means that you have different responsibilities from other employees that you may have to fulfil.
For employers, knowing the difference between a contractor and an employee is a must. It can lead to costly penalties if the two get confused.

An independent contractor is someone who operates under an ABN and is not an employee of the company that they perform work for. They may also provide services to another person or business,

Sometimes an independent contractor may operate their own business and have many clients, in other cases the independent contractor may only do work for one company.

There are a number of factors that determine whether or not you may be classified as a contractor versus an employee. These can include:

  • How much control you have over the work you are conducting for the business – the more control you have, the more likely it is an independent contracting relationship.
  • If you are allowed to pick when you are working – employees have set hours in their agreement.
  • If you are running your own business and can have other clients while doing the work for this particular business.
  • If you are able to delegate or subcontract the work to others.
  • If you are the one responsible for your work and insurances – employees are covered by their employer, contractors are responsible for organising their own.
  • If you are expected to have your own equipment prepared for the work that you will be performing – employees will be provided with the equipment that they need.
  • If you bear financial risk for your errors.  You might have to redo the work for no pay if you get it wrong

In Australia, independent contractors often use the sole trader business structure when operating and conducting their business. Due to this, there is a legal requirement that you register an ABN for yourself or your business if operating as a contractor/sole trader.

Having an ABN is important. It identities you and your business to the government and helps with tax and other business-related activities.

Not everyone may be entitled to an ABN (especially if they are considered to be an employee for the work that they are performing),. As a sole trader though, you are as you are considered to be starting or carrying on an enterprise.

For those who wish to contract you for your services, an ABN means that your clients will not be required to deduct tax from you. If you invoice an organisation without being in possession of an ABN, they are required by law to deduct tax at the highest rate that they can, as well as declare the income you receive from them through to the ATO.

If you’re operating as an independent contractor or sole trader, losing a chunk of your income to tax before you even get paid isn’t something that you’re likely to want to happen. That’s why having an ABN is important for you, to ensure that that doesn’t happen.

If your business is looking into creating a working relationship with a contractor, you need to be careful that you do not fall into a sham contracting arrangement.

A sham contractor arrangement is when a business (or individual) tells a worker that they are an independent contractor. It can exist even if the worker is treated like an independent contractor in some ways such as having an ABN and providing invoices like what a genuine independent contractor might have to do.

It’s illegal and be done knowingly by an employer to avoid taking fiscal responsibility for paying legal entitlements to employees. It is illegal to:

  • tell an employee they are an independent contractor
  • say something false to convince an employee to do the same work for the employer but as an independent contractor
  • dismiss or threaten to dismiss an employee if they don’t become an independent contractor, or
  • dismiss an employee and hire them as an independent contractor to do the same work.

If you are concerned that you may be involved in a sham contracting arrangement or are an independent contractor looking for assistance in ensuring that you are remaining compliant with your current obligations when it comes to tax, super or business, Concord Tax Kirwan can assist. We are also equipped to help you with dealing with an ABN.


What is the $1,500 low and middle income tax offset and how will it affect my tax return in 2023?

As you may have heard through various news channels and articles, millions of Australians are due to feel a sharp increase in their taxes which will results in lower tax returns in 2023. Why? Because the generous low and middle income tax offset (LMITO) of up to $1,500 has expired and will not be available for the 2023 financial year.

It’s important to note that there is a difference between the low income tax offset (LITO) which is still available and the low and middle income tax offset (LMITO) which has expired.

Overview of the low and middle income tax offset (LMITO)

The low and middle income tax offset (LMITO) is a tax benefit that has been available to eligible Australian taxpayers since 2018.

Taxpayers earning between $37,00 and $126,000 for the 2021-22 financial year were able to benefit from this offset for an amount of up to $1,500. However, this offset is no longer available for the 2023 financial year, as you might have heard from media outlets throughout Australia, and in turn, this will lead to smaller tax returns for millions of individuals and sole traders compared to last year.

Overview of the low income tax offset (LITO)

The low income tax offset (LITO) has been available for many years, is still available, and has not expired like the LMITO. This tax offset will still provide some relief to those who earn less than $66,667 for the 2022-23 financial year.

Eligible taxpayers can claim the LITO when they file their tax returns. For the 2022-23 financial year, the maximum LITO is $700.

Table Showing estimated decline in tax refund for the 2023FY due to the expiry of the low and middle income tax offset.

IncomeReduction in 2023FY Tax Return
$30,000 or below$675
$130,000 or above$0