A proposed change to the way Australians claim back tax deductions for working from home, could mean some lose out on more than $1,300 a year, according to tax agents.
The Australian Taxation Office (ATO) confirmed it is making changes to the way Australians can confirm tax deductions for working from home, after some consultation late last year.
Each year, eight-and-a-half million Australians claim about $20 billion worth of work-related expenses, many of which relate to working from home. The average claim each year is about $3,000.
Previously, taxpayers could choose from a number of different methods to calculate how much they could claim when working from home.
These included a fixed-rate method of 52 cents per hour, an actual cost method, and a shortcut method of 80 cents per hour.
This temporary method introduced during the pandemic, applied from March 2020 and ended on June 30 last year, meaning taxpayers can no longer use it for this year's tax return.
But tax agents are worried that the ATO is now also changing the 52-cent method in a bid to lower the amount of tax deductions people claim this year.
The ATO has confirmed it is scrapping the method and replacing it with a revised fixed rate of 67 cents – which while a higher rate, also has limits on what expenses taxpayers can claim.
Mark Chapman, director of tax communications at H&R Block, said these changes could leave some taxpayers worse off.
He noted the compliance requirements are far more stringent, and that means some people could end up with lower deductions.
"Firstly, these new rules are supposed to start from July 1, 2022, but the ATO are now only telling us what the final rules are," Mr Chapman told ABC News.
"That puts taxpayers in a disadvantaged position because they have to comply with requirements that they might have not been aware of when they incurred the expense."
Mr Chapman said the ATO asked the tax community for feedback on the proposal late last year, and it seemed most tax agents were against the change.
"The ATO has ignored it [the feedback from tax agents] and we are basically stick with this 67-cent rate," he said.
He said one of the most onerous requirements under the new method was that taxpayers have to record every hour they work from home.
"But they [the ATO] are only telling us about this now; it's pretty poor form. It's going to cause enormous confusion," Mr Chapman said.
What's the new method being proposed?
Under the current 52-cents-per-hour fixed-rate method, items like work-related mobile and home telephone expenses, internet expenses, stationery, and the decline in value of a computer, laptop or similar device can be claimed as a separate deduction.
But the new 67-cent rate considers a taxpayer's total deductible expenses for their electricity and gas, phone usage (mobile and home), internet, stationery and computer consumables.
"No additional deduction for any expenses covered by the rate can be claimed if you use this method," ATO assistant commissioner Tim Loh said.
He added items that still can be claimed separately include decline in value of assets used while working from home, such as computers and office furniture, repairs and maintenance of these assets and costs associated with cleaning a dedicated home office.
Mr Chapman said this meant taxpayers could not claim an additional separate deduction for items like a mobile phone when working from home, as the assumed cost was already baked into the 67 cents rate, but there was no evidence for how the ATO arrived at that rate.
"The ATO have not given us any feedback as to how they arrived at 67 per hour," Mr Chapman said.
"It appears to be a figure plucked from thin air, and will disadvantage taxpayers in terms of the amount of deductions they can claim."
He estimated average tax returns could drop more than $1,300 a year.
He said this was based on figures of most taxpayers on average getting $2,618 back under the old method, but that now dropping to about $1,286 on average under the new method.
CPA Australia senior manager tax policy Elinor Kasapidis said before the pandemic about two million Australians claimed deductions for working from home expenses, and that due to the pandemic this jumped to about five million people.
She said the ATO had consulted with industry but "has a big job ahead to ensure Australians are aware of their obligations".
She said CPA Australia has been asking the government to legislate a fixed rate method to ensure people can use that method to claim tax deductions and not have to revert to other methods at the whim of the ATO. But the CPA had not called for this particular method.
Keep records of the time you work from home and receipts
Mr Chapman urged taxpayers to keep a record of all the hours they work from home, as well as receipts and invoices for any additional costs incurred while working at home, such as mobile phone, internet and electricity bills.
He said with the new rate, people would need to keep timesheets for the entire year, logging hours they work from home, and also keep receipts for everything they want to claim.
He said many people do their down tax deductions, but the new method could cause mistakes.
He urged people to speak to a tax agent if they have high work-from-home expenses "because the potential for mistakes now is too great".
But Mr Loh said there were benefits to using the new method.
"Items that are difficult and tedious for everyday Aussies to calculate actual work-use, like phone, internet and electricity expenses, are included in the revised rate," he said.
"Assets and equipment that typically give taxpayers a bigger deduction, such as technological items and office furniture, are not included in the revised rate and need to be claimed separately.
"Another benefit is that you no longer need a dedicated home office to use the fixed rate method."
Mr Chapman said, "It is not acceptable that the ATO are introducing this retrospectively", but Mr Loh said taxpayers who haven't kept records so far this income year that transitional arrangements are in place for the the last six months of last year and first two months of this year.
"From July 1, 2022 to February 28, 2023, we'll accept a record which represents the total number of hours worked from home (for example a four-week diary)," he said.
"From March 1, 2023 onwards, taxpayers will need to record the total number of hours they work from home."
Mr Loh also said it was important to keep proper records of hours worked from home.
He said this could be in any form "provided they are kept as they occur, for example, timesheets, rosters, logs of time spent accessing employer or business systems, or a diary for the full year".
He also urged taxpayers to make sure they incurred the expense as part of their work, and to not claim for home items.
"You can't claim for things like coffee, tea, milk and other general household items, even if your employer may provide these kinds of things for you at work," Mr Loh said.
"Records must be kept for each expense taxpayers have incurred which is covered by the fixed rate per hour. For example, if taxpayers use their phone and electricity when working from home, they must keep one bill for each of these expenses," Mr Loh said.
The 'actual cost' method has not changed, he said.
No matter which method is used, he said if taxpayers purchase assets and equipment for work and it costs more than $300, they cannot claim the full amount immediately.
"For each of these items, the deduction must be claimed over a number of years and the work portion claimed, known as decline in value or depreciation," he said.
