How to Claim Work-From-Home Expenses in 2024?

Post-COVID, many people are working remotely. More and more businesses are offering
hybrid or permanent work-from-home opportunities to their employees. Similarly, many self-employed individuals are working from home.

With this rising working method, the ATO (Australian Taxation Office) offers options to
claim tax deductions to those working from home.

But there is often confusion regarding who can claim what and how much! As a leading
accounting firm, we encounter many such taxpayers who are either claiming less and missing
out on tax optimisation or claiming more and might get on the wrong side of the ATO!
So, we decided to create a detailed blog that will illuminate this topic to ensure zero
confusion and maximum tax optimisation.
So, let’s begin.

Who is eligible to claim Work-from-home expenses?

ATO has set clear guidelines on who can claim work-from-home expenses. Broadly
speaking, individuals who work from home, whether as part of their employment or because
they are running a business from their residence, can claim work-from-home expenses. But
there’s a catch! The nature of your Work and the area within your home dedicated to this
Work determines what you can claim.
Here’s how:

For Employees : If you are an employee working from home, the ATO guidelines say that you must be
performing substantiative Work directly related to your employment. This does not include
occasional Work, such as checking emails or taking calls.

For Business Owners and Freelancers: Self-employed or business owners operating from
home can claim Work for home expenses of a broader range of expenses. If your home office
is your principal place of business, you can claim both running and occupancy expenses.

What You Can Claim

1. Occupancy Expenses

This is the most misunderstood aspect of what you claim under work-from-home expense.
These expenses include rent, mortgage interest, property insurance, and council rates. In most
of the cases, individuals whose home is their primary place of business can claim this
deduction. This means a portion of your home must be dedicated solely to your business, and
it should be a space that is not used for any other purpose. Overall, this could be a great way
to reduce your tax liability.

But there’s a catch! If your home doubles as your principal workplace, be aware that it could
be partly subject to Capital Gains Tax (CGT) upon sale. And this applies even if you do not
claim home occupancy costs on your tax return. The taxable portion is usually tied to the area
of your home used for business—which is around 10%. But, if you are renting the place or do
not have a dedicated business area, CGT won’t apply. Does it seem too complex? Well, it
actually is! That’s why we recommend discussing this with experts like Nanak Accountants
before claiming occupancy on your Primary Place of Residence (PPOR) to avoid unexpected
CGT events. We have a team of experts who can provide you with tailored advice to ensure
you get maximum benefits. So don’t risk it. Get in touch for personalised advice.

2.Running Expenses

Running expenses cover the costs associated with the routine use of your home office. This
includes, but is not limited to:

• Electricity and Gas: For heating, cooling, and lighting, the area is used for work.
• Depreciation: On office furniture and equipment such as computers, printers, and other technology used for work purposes.
• Office Supplies: Stationery, printer ink, and other small office items necessary for your Work.

3. Communication Expenses:

These are the expenses, including phone and internet costs, associated with your work. You
can claim a deduction for the work-related portion of these expenses. But to do so, you will
have to determine how much internet and phone you are using specifically for your business.

Remember, your eligibility to claim these expenses hinges on the specifics of your work
situation. For instance, having a dedicated work area significantly affects what you can claim.
This doesn’t mean you have to have a separate room in your home for this. You can designate
an area of your room as long as you are using it solely for Work.

Now, let’s understand the two methods used to claim Work-from-home expenses.

Actual Cost Method

If you are opting for this method, you can claim all Work from home expenses that you have
incurred. But to do so, you will have to keep a detailed record of every bill, receipt and diary
entires. This can be a challenging part but also comes with good rewards as you can claim all
the eligble expenses. Let’s understand this method with an example.

Example#1:

Alex is a digital marketer who has set up a dedicated workspace in her apartment.
Throughout the year, Alex has kept meticulous records of the following expenses:

• Electricity expenses for heating, cooling, and lighting: $400
• Internet charges: $700
• Depreciation on her high-end computer and working setup chair: $800
• Office supplies, including printer ink and stationery: $200

Now, Alex uses the actual cost method to calculate and claim Work-from-home expenses. As
per this method, she calculates the work portion of her home (let’s say it’s 15% based on the
area of her workspace as compared to her entire apartment) and applies this to her total
expenses. Hence, Alex’s deductible amount is $2,100 (total expenses) * 15% = $315.

Fixed Rate Method

Now, if you don’t want to go into trouble with maintaining all the books and bills, claim
work-from-home expenses; the fixed rate method is more suitable, especially if the expenses
you are claiming are not substantial. From this year on, you can now claim a fixed rate of 67
cents per hour for the hours you work from home. This covers running expenses like
electricity, heating, cooling, lighting, and the cost of consumables, as well as a decline in the
value of furniture and furnishings used for work. Let’s understand this method too with an
example.

Example#2: Jordan, a remote software developer working in a company, who works from
his study room 25 hours per week. He does not itemise his running expenses but chooses the
Fixed Rate Method for ease of calculation.

Here’s how what his deduction would look like this:

• 25 hours/week * 48 weeks/year = 1,200 hours/year
• 1,200 hours * $0.67 (fixed rate) = $804

So based on this calculation, Jordan can claim a deduction of $804 for his Work from home
expenses. The best part? He won’t need to keep tabs on all his expenses.

Choosing Between the Two

Deciding on the best method hinges on your specific situation. The Actual Cost Method may
be more advantageous if your actual home office expenses are significant and you can
document them precisely. This method demands thorough record-keeping. In contrast, the
Fixed Rate Method offers straightforward calculation and less burdensome record-keeping,
which is suitable for those preferring simplicity or having lower home office running costs.

Get the Right Advice

You can claim work-from-home expenses to minimise your tax liability. However, due to
constantly changing laws and regulations, it becomes a challenge for individuals to claim it
right. That’s where experts like Nanak Accountants & Associates can come to your rescue. If you, too, are
struggling with how to claim Work-from-home expenses, feel free to reach out. We have a
team of experts who will ensure you do not miss out on a single penny of tax savings and stay
100% compliant with ATO’s guidelines. For any further information, schedule an
appointment right away.