Taxpayers could soon be $1400 worse off

The Australian Taxation Office (ATO) recently released its Practical Compliance Guideline for the 2022-23 financial year, which included a proposed change to the shortcut calculation method.

This year, workers could choose from three different methods to calculate how much they could claim as a result of working from home.

These included a fixed rate method of 52c per hour, an actual cost method and a shortcut method of 80 cents per hour.

The latter was only available from March 2020 to June 30, 2022, meaning it will no longer be an option at tax time next year.

Now, under a proposed change by the ATO, the 52c method could be scrapped as well, and replaced with a revised fixed rate of 67 cents.

While the suggested rate is higher than the current 52 cents, the proposal also changes what additional expenses workers can claim, which may result in a significantly lower tax return.

The new 67c rate would take into account your total deducible expenses for electricity and gas, internet, mobile phone, and stationery and computer consumables for the income year.

“This means you cannot claim an additional separate deduction for any of these expenses,” the ATO’s draft proposal states.

“For example, if you use your mobile phone when you are working from home and when you are working from somewhere other than your home, your total deduction for mobile phone expenses for the income year will be covered by the hourly rate of 67c per hour.”

However, taxpayers could make separate claims for depreciating office equipment and furniture.

Under the current 52c per hour fixed rate method, things like work-related internet expenses, mobile and home telephone expenses, stationery and computer consumables can be claimed as a separate deduction.

If the changes are brought in, then the new fixed rate method would be backdated to July 1, 2022.

Mark Chapman, director of tax communications for H&R Block, told news.com.au if this change comes in, taxpayers who work from home will have two choices: to either claim the actual cost method or the 67 cents per hour flat rate.

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

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

Because the new fixed rate method includes costs such as mobile phones, Mr Chapman said many Aussies could “lose out” come tax time.

“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 new fixed rate method, you’ll lose this opportunity,” he said.

“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.”

Calculations from H&R Block said a person working from home for a year would typically get around $2618 back in tax under the 52 cent fixed rate, according to The Daily Mail.

Under the old 80 cent shortcut method that deduction dropped to about $1536, with a further decrease to $1286.40 under the new 67 per hour rate.

That is a difference of almost $1400 when comparing the new proposed fixed rate to the 52 cent rate.

Mr Chapman urged taxpayers to keep a record of all the hours they work from home, along with receipts or invoices for any additional costs incurred while working at home, such as mobile phone and electricity bills.

“If you think you might be affected, talk to a tax accountant (like H&R Block) as soon as possible to understand what the impacts will be and what you need to do straight away to comply with the new rules,” he said.

Taxpayers who do not wish to use the new proposed method will have to use the actual cost method to calculate their tax return, which is significantly more time consuming as it requires more documentation.

The actual cost method, as the name suggests, allows the taxpayer to claim a deduction for the actual expenses they incur as a result of working from home.

Deductions for asset depreciation, cleaning expenses, electricity and gas, phone and internet and computer consumables are calculated individually, and require detailed evidence including receipts and diaries used to calculate the work-related percentage of each.

Those planning to use this method will need to keep a diary or some kind of record of their work from home hours for a typical four week period.

They will also need to calculate the floor area they are using as their work space to then figure out the work-related proportion of their household expenses.

A person must laos keep all receipts, bills and other documents which show the additional running expenses incurred while working from home and that were used to work out their deduction.

The ATO notes that people can’t claim for additional running expenses if other members of the household who are not working from home are in the same room.

For example, “Lee works from her lounge room while her partner and three children watch television. Lee isn’t incurring any additional costs for lighting, heating or cooling as a result of working in that room, so she can’t claim a deduction for them.”

– with Frank Chung