Record-Keeping Tips for Maximising Your WFH Tax Deduction in Australia

The Fixed Rate Method

The fixed rate method is a straightforward way to claim a WFH tax deduction. For the 2022-23 and 2023-24 income years, you can claim 67 cents per hour for all the hours you work from home. This rate covers running expenses such as energy expenses for heating, cooling and lighting, home internet expenses, data expenses, mobile phone expenses, home phone expenses, and stationery and computer consumables. You don’t need a dedicated home office to use this method, and you can still claim additional deductions for items not covered by the rate, such as the decline in value of home office furniture, office equipment, and cleaning expenses for a dedicated home office.

From the 2024-25 income year, the revised fixed rate will increase to 70 cents per hour. This method is popular because it’s easy to use and doesn’t require you to apportion expenses or calculate the work-related portion of each bill.

The Actual Cost Method

The actual cost method lets you claim the exact amount of additional running expenses you incur from working from home. This includes energy expenses, internet expenses, phone expenses, and the decline in value of home office equipment and furniture. You’ll need to keep detailed records of all expenses and work out the work-related use for each one. If you have a dedicated home office, you may also be able to claim occupancy expenses, such as mortgage interest or rent, but these need to be claimed separately and only if your home office is used exclusively for work.

The actual cost method can result in a larger deduction if your costs incurred are higher than what the fixed rate covers, but it does require more effort and attention to detail.

What Records You Need to Keep for WFH Tax Deductions

Good record keeping is the foundation of any successful WFH tax deduction claim. The Australian Taxation Office expects you to keep detailed records for all the hours worked from home, as well as proof of the expenses incurred. This section will guide you through what to keep and how to keep it simple.

The most important records are your hour logs and receipts for the expenses you want to claim. The ATO no longer accepts estimates or sample diaries for the fixed rate method – you need to record actual hours worked from home for the entire financial year. This can be done with a timesheet, a digital log, or a simple diary entry for each workday.

For the fixed rate method, you need at least one record for each type of running expense covered by the rate. This includes a quarterly electricity bill, an internet bill, a phone bill, and receipts for stationery and computer consumables. For the actual cost method, you’ll need a detailed breakdown of all expenses, including the work-related portion of each one.

Tracking All the Hours Worked from Home

To claim a WFH tax deduction, you must keep a record of all the hours you work from home. This means tracking actual hours, not just days. You can use a spreadsheet, a time-tracking app, or your work calendar. Make it a habit to log your hours at the end of each day or week, so you don’t forget.

The ATO expects contemporaneous records – that is, records made at the time you work, not recreated later. This is especially important if you use the revised fixed rate method, as you’ll need to show exactly how many hours you worked from home over the income year.

Keeping Receipts and Proof of Expenses

For any WFH tax deduction, you’ll need to keep receipts or invoices for all expenses incurred. This includes energy bills, internet bills, mobile phone bills, home phone bills, stationery, and computer consumables. If you buy home office equipment, office furniture, or an office chair, keep the receipts and note the date of purchase. If you claim the decline in value for depreciating assets, keep records showing when you bought the item, how much you paid, and how you calculated the work-related use.

Bank statements alone aren’t enough – the ATO wants to see actual receipts or invoices. Store them in a dedicated folder or take photos and save them in the cloud. This way, you’ll have everything ready at tax time.

Calculating the Work-Related Portion

For many expenses, especially if you use the actual cost method, you’ll need to work out the work-related portion. This means figuring out how much of each bill or item relates to your employment duties. For example, if your home internet is used 60% for work and 40% for personal use, you can only claim 60% of the internet expenses as a deduction.

If you share your home with others who also work from home, each person can claim their own hours worked and their share of the additional running expenses. Just make sure you don’t double up on claims for the same expense.

Choosing the Best Method for Your Personal Circumstances

Choosing between the fixed rate method and the actual cost method depends on your home office setup, the running expenses you incur, and how much time you spend working from home. Here’s how to work out which method suits you best.

The fixed rate method is ideal for those who want a simple approach and have typical running expenses. It works well if you don’t have a dedicated home office or if your additional costs are similar to what’s covered by the cents per hour rate. It’s also useful if you want to save time on record keeping.

The actual cost method is better if you have higher running expenses, a dedicated home office, or significant home office expenses like expensive office equipment or high energy bills. If you incur additional running expenses that are much higher than the fixed rate covers, the actual cost method could give you a larger deduction. This method requires more detailed records and calculations, but it can be worth it for those with higher costs.