Home Office Expense – which method results in the best tax deduction?

It has long been the case that individuals who work from home can claim expenses that are incurred in using the home office for work related purposes as a tax deduction.

There are 2 methods commonly used to calculate the home office expense, however recent changes to the more simpler ‘cents per hour’ method may result in more people thinking about switching methods to the ‘actual method’.

Below we explain the recent changes and the difference between the two methods to help you determine which one may be right for you in order to maximise your tax deduction.

Key points of the “cents per hour” method

• Every hour worked throughout the financial year needs to be recorded. You can use your timesheets, rosters, diary or other similar document to illustrate the total number of hours you worked from home during the year;
• There is no longer a need for a separate room to act as a home office;
• Electricity, home phone, mobile phone calls, internet, stationery, and printer supplies are all included in the cents per hour;
• The rate is currently 67c per hour for the financial year ending 30 June 2023;
• There is a need to have a subscription for phone, internet, and electricity; and
• You cannot use this method if you are a boarder.

Please take note that you will not be able to deduct your mobile phone calls even if you use it for business when you are not at home if this method is used.

NOTE: The shortcut method of 80 cents per hour which was a temporary measure as a result of Covid-19 is no longer available for the 2023 financial year.

Key points of the “actual cost” method

• There is a requirement to keep a 4-week expenses diary that represents the expenses incurred throughout the year;
• Electricity expense deduction is calculated through the actual usage and can only be claimed if there is a separate room acting as a home office;
• A claim on phone expenses is based on the actual calls for 4 weeks;
• Receipts are needed to claim stationery & printer supplies expenses;
• It is important to keep all phone, internet, and electricity bills;
• If you are a boarder, you cannot claim expenses you DO NOT pay.

In the actual cost method, plant and equipment—such as printers and laptops—are depreciated throughout their useful lives with a four-week diary to illustrate the ratio of work to personal use.

Why should you keep an expense diary?

Keeping an expenses diary helps you track the costs you want to claim as part of your home office tax deduction and may result in a larger tax deduction given the new limitations of the cents per hour method.

Now is the time to start keeping a diary and collate all your relevant receipts in preparation for the end of the financial year. We have prepared a template that you can use to ensure you are complying with the new ATO guidelines. Simply click on this link to access the template and start an expenses diary today: template for the expenses diary .

Click here to read our previous blog on other expenses incurred by individuals that you may be able to claim as a tax deduction.

For any assistance, you can book an appointment with us and we will walk you through each step to help you further understand how you can reduce your taxes by claiming home office expenses.