Understanding which WFH expenses you can claim at tax time 

As many people sit in their home offices in shorts and business shirts, it is fair to say that we are now working in a vastly different environment than we were pre-March 2020. The daily grind of commuting into a city-based or suburban office is unlikely to return. Flexible working is here to stay and is only likely to increase over time. This will, of course, have an effect on the way we perform our income tax returns. This article tackles the definition of WFH expenses, as well as what you may and may not claim for come tax season.

How did the law change post-COVID?
While workplace practices have evolved, the continuing advice from the Australian Tax Office (ATO) has not changed. In particular, the ATO guidance discussing when an employee can claim Work From Home (WFH) occupancy expenses in addition to their running expenses is fundamentally the same as it has always been. However, although expenses associated with a taxpayer’s home were previously defined as private and did not qualify as deductions for taxation purposes – the exception to this general rule is then introduced. The exception details that where part of the home is used for income producing activities and has the character of a place of business certain things may be tax deductible.

The term ‘place of business’ is an interesting choice of words as the second limb of section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) does not apply to employees who work from home as they are not conducting a business. In such cases, some of the expenses incurred in respect of the home such as rent, interest, repairs, insurance, rates and building depreciation may be partly deductible. These are referred to as ‘occupancy expenses’.

Another exception to this general rule is where part of the home is used in connection with the taxpayer’s income earning activities but does not constitute a place of business. In this case, a more limited range of deductions may be available such as heating and cooling, cleaning, and lighting. These are referred to as running expenses.

If you’re unsure of any part of your tax responsibilities get in touch with a member of My Tax Accountant today, we have experts ready to help you with everything from affordable tax return guidance to professional tax dispute advice.  

What does the ATO say about WQFH expenses?
The current ATO guidance (found in Taxation Ruling TR 93/30) in relation to claiming WFH expenses details that employees can claim running and occupancy expenses. Many of the paragraphs emphasise that an employee can claim occupancy expenses when there is no alternative place for conducting income producing activities and the workspace is used almost exclusively for income producing purposes. Unfortunately, the Ruling does not contain any examples.

The ATO website guidance includes the three methods for claiming work related expenses. These are the shortcut, the fixed rate and actual cost methods. Here is a breakdown of each method:

The shortcut method (at 80 cents per hour) covers the following WFH expenses –

• Telephone expenses
• Internet expenses
• The decline in value (DIV) of equipment and furniture
• Electricity and gas for heating, cooling and lighting

The fixed rate method (at 52 cents per hour) allows the DIV of home office furniture and furnishings, electricity and gas for heating, cooling and lighting, and cleaning your home office. It does not include telephone, data and internet expenses (including the DIV of the handset), computer consumables and stationery, and the DIV of depreciating assets other than home office furniture and furnishings used for work purposes.

And finally, the actual expenses method allows you to claim the actual expenses you incur due to WFH.

What else should you know?

The following decisions on claiming WFH expenses are important to understanding what may or may not be deductible:

• Federal Commissioner of Taxation v Faichney [1972] HCA 67 (Faichney). A key takeaway from this decision is that, even if the employer does not make premises available to an employee taxpayer for after-hours work, yet expects such work to occur, this is not of itself enough to render occupancy expenses of a home office deductible. All the relevant facts must be considered to determine deductibility, such as the workspace itself.

• McAteer and Federal Commissioner of Taxation [2020] AATA 1795 (McAteer). This recent decision reflects modern WFH situations. Occupancy expenses were allowed to the taxpayer on the condition that the Commissioner recalculated the expense on a time and space basis for a shared area. The Tribunal Member was satisfied that the shared area was set aside exclusively for work as part of gaining or producing of income even though it was also an entrance for the home.

• Ogden and Commissioner of Taxation [2016] AATA 32. A prime example of what not to do. This taxpayer claimed a wide variety of expenses, including WFH expenses, most of which were denied by the Commissioner.

Additional considerations regarding WFH expenses

While some of the WFH deductions claimed by employees in 2022 are straight forward, many are not addressed by the current tax laws. If any of the circumstances below represent your living/working situation it is recommended that you contact a professional tax consultant for guidance – 

• If you are looking to claim occupancy expenses where there is a shared space, in accordance with McAteer (mentioned above). The ATO website states that an employee working from home generally cannot claim occupancy expenses and provides an example like the McAteer decision, but this website example does not discuss that some of the area used by the taxpayer in McAteer was shared.

• If you WFH and have a weekly team day at a shared workspace, or other flexible working arrangements with your employers. There is currently not enough information around how an employee may claim occupancy expenses on the days that they WFH and do not have a workplace outside their home available to them.

• If you make an occasional trip once or twice a week to the office (whether for a whole day or briefly during the day). These trips do not have the character of a taxable purpose (unless one of the normal exceptions applies, such as carrying bulky tools or equipment or where the taxpayer is an itinerant worker etc)

How a professional tax accountant can help 

While working arrangements have changed for many workers, the fundamental tax law principles have not. It will be important for the taxpayer’s particular circumstances to be carefully considered before making a claim for WFH expenses. That’s why seeking the advice of a professional tax consultant is recommended. 

My Tax Accountant is your go-to destination for expert tax services. We specialise in assisting clients with tax disputes, even if we did not prepare the original tax return. Our tax dispute resolution services are designed to resolve issues efficiently and effectively, helping you navigate the complex world of taxation with ease. Speak to one of our team members today. 

Correct as at the 2021 and 2022 Australian income tax years

Disclaimer: This document should not be interpreted as tax advice. All information is of a general nature only and might no longer be up to date or correct. You should seek professional accredited tax and financial advice when considering whether the information is suitable to your or your client’s circumstances.