Practical Compliance Guideline

Our communications from 1 July 2022 about working from home expenses have advised taxpayers that the shortcut method would no longer be available and to keep records of the actual hours they worked from home.

If this method does not apply from 1 July 2022, those taxpayers will be required to claim the actual expenses they incurred because the current fixed-rate method requires taxpayers to have a dedicated home office space.

The new paragraph should:

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make reference to Taxation Ruling TR 2011/5 Income tax: objections against income tax assessments

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explain taxpayers' objection rights

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encourage taxpayers to resolve the matter prior to lodging an objection and indicate the ATO's willingness and preference for this pathway, and

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provide alternative pathways to resolve matters prior to the objection stage.

ATO auditors should also be provided with clear guidance on how to work with taxpayers to resolve disagreements or concerns in a pragmatic manner. This includes ensuring that a taxpayer's whole working from home claim is not denied and that concessions are otherwise provided where a taxpayer has made a genuine attempt to comply with the Guideline.

Paragraph 6 of the final Guideline also states that if taxpayers lodge an objection for any reason, they will not be able to rely on the Guideline or use the revised fixed-rate method to determine whether they are entitled to a deduction for their working from home expenses.

These paragraphs already state that taxpayers will not be able to use the revised fixed-rate method to calculate their working from home claim if they are found not to have met the eligibility requirements. This includes lodging an objection on this basis.

We will always look to practically resolve disputes, whether before or after an objection has been lodged.

As public advice and guidance on objections and how to lodge an objection already exists, no further content about how to lodge an objection has been included in the final Guideline. However, a reference to TR 2011/5 has been included in footnote 6 of the final Guideline.

Guidance for our staff will be developed.

This creates difficulties for taxpayers who have relied on the revised fixed rate but have been found not to meet the requirements because they may not be able to fully substantiate their working from home expenses.

Given the permanent shift in working arrangements and the increasing scrutiny by the ATO of working from home deductions, there is a need to legislate the revised fixed-rate method to preserve taxpayers' access to this method at objection to claim their expenses.

The 67c per hour is a proxy rate used as an exercise of the Commissioner's general power or administration as to how we will apply compliance resources.

When a taxpayer disputes whether a working from home expense is deductible, either at objection or before the Administrative Appeals Tribunal or Courts, they will need to establish that the particular expense was incurred and is deductible under the law. This is a different process to us not applying compliance resources to verify if a particular expense is deductible.

The comment concerning the need for a legislative response is a policy issue that falls outside the scope of this Guideline.

The revised fixed-rate method applies to individuals, including those carrying on a business from their home. As per paragraph 2 of the final Guideline, from 1 July 2022 taxpayers can continue to claim their actual expenses or, alternatively, they can use the revised fixed-rate method outlined in paragraphs 23 to 26 of the final Guideline.

The final Guideline should explicitly state and provide examples to clarify how the revised fixed-rate method would apply to partnerships, trusts, companies and attributed personal services income.

More information about deductions for home-based businesses (including partnerships, company and trusts is available at Types of business structures . This guidance will be updated after the final Guideline is published.

There is ambiguity and a lack of detail. For example:

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If a schoolteacher finishes work in the afternoon and takes student work home for marking on an ad hoc basis, is this regarded as working from home?

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Expanding the above example, if a schoolteacher finishes work in the afternoon and takes student work home for marking every day, is this regarded as working from home?

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If a bookkeeper finishes work, but logs back into the file at home in the evening to complete a task, is this regarded as working from home?

As per Example 3 in the final Guideline, a taxpayer who simply checks their roster at home each week is not considered to be working from home. In the same way, a taxpayer who occasionally takes a quick phone call at home will not be considered to be working from home. This can be contrasted with a taxpayer who checks their work emails at home each day or who is required to attend a meeting by phone after hours.

Requiring taxpayers to incur additional running expenses is outside the purview of section 8-1 and subjects taxpayers to stricter requirements for incurring outgoings if they rely on the revised fixed-rate method for their working from home claim.

'Additional expenses' should be removed from the final Guideline and replaced with 'losses and outgoings'. This replacement will ensure that the meaning in section 8-1 is accurately reflected in the final Guideline.

This is the reason the final Guideline refers to additional running expenses.

Taxpayers are not expected to undertake a comparative exercise to demonstrate that they have incurred additional running expenses as a result of working from home. This can be demonstrated by the number of hours they have worked from home.

To make this clear, footnote 11 (paragraph 18(b)) and footnote 23 (paragraph 51) have been added to the final Guideline.

... 'incurring additional running expenses of the kind outlined in paragraph 14 of this Guideline which are deductible under section 8-1 as a result of working from home ...'.

This paragraph also refers the reader to paragraphs 49 to 55 of the Guideline for more information on what is required to meet this criterion and does not state you need to incur every kind of expense, just the kind of expenses outlined in paragraph 14 of the Guideline.

Further, there is a reference to paragraph 49 of the final Guideline which, as noted, states that taxpayers do not have to incur every running expense listed at paragraph 23 of the Guideline.

Taxpayers who have high mobile phone expenses will need to claim their actual expenses if they want to claim what they are entitled to and they will require assistance from tax agents to do this.

As a mobile phone is a depreciating asset, a deduction for the decline in value of the phone can be claimed in addition to the revised fixed rate per hour. Monthly plans which include a payment for the phone generally separate the cost for the phone and the cost of the monthly plan or state what the overall cost of the phone is.

Taxpayers who use their mobile phone mainly for income-producing purposes can either:

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claim a deduction for the mobile expenses (and other working from home expenses) they incur in the course of earning their assessable income, or

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choose this simpler method and use the revised fixed rate per hour.

We will continue to ensure there is public advice and guidance available to assist taxpayers in claiming working from home expenses should they wish to claim the actual costs they have incurred.

Internet expenses have been included in the fixed rate per hour for the same reasons mobile phone expenses have been included.

Taxpayers who have high stationery costs may not find this method suitable for their circumstances and can instead claim their actual working from home expenses.

Assistance to taxpayers in calculating their deduction for the decline in value of depreciating assets is available via the Depreciation and capital allowances tool .

Information on how to treat depreciating assets that were purchased while a taxpayer was using the shortcut and current fixed-rate methods can be found at Decline in value of depreciating assets .

Footnote 16 of the final Guideline has been amended to include a link to the Depreciation and capital allowances tool.

The rate of 67c per hour for the purpose of claiming working from home expenses under the revised fixed-rate method was based on the Australian Bureau of Statistics' household expenditure survey with consideration of annual Consumer Price Index weightings for the 4 categories of expenses comprising the rate; that is, electricity, gas, communications (including phone and internet charges), stationery and computer consumables such as printer ink and paper.

We will continue to review whether the rate is reflective of current running expenses incurred by taxpayers who are working from home.

If a taxpayer considers that the revised fixed rate of 67c per hour is less than what they are incurring on working from home expenses, they are able to claim the actual expenses they incur as a result of working from home.

For transparency, footnote 13 has been added to paragraph 23 of the final Guideline to explain what the fixed rate per hour is based on.

Tinkering with a functioning all-inclusive rate creates unnecessary complexity for all concerned. As a matter of good public accountability, the ATO as an institution should be held to a comparable (if not, a higher) standard than taxpayers. In the same manner that taxpayers must apportion expenses on a fair and reasonable basis where applicable (paragraph 12 of the draft Guideline), the ATO should publish calculations to demonstrate, factoring in the above elements, why Australian taxpayers should accept more complexity only to see a 13c per hour reduction in the working from home shortcut rate. How is the revised working from home shortcut rate espoused in the draft Guideline 'fair and reasonable'?

Cleaning expenses are deductible where a taxpayer has a separate dedicated home office space. As it is not a requirement of the revised fixed-rate method to have a separate dedicated home office space, it is not appropriate to include an amount in the fixed rate per hour for cleaning expenses.

See our response to Issue 13 of this Compendium in relation to the fixed rate per hour not covering decline in value.

The revised fixed rate per hour covers all working from home expenses that are commonly incurred by taxpayers and that are difficult to apportion. As stated in our response to Issue 13 of this Compendium, assistance to taxpayers to calculate their deduction for the decline in value of depreciating assets used while working from home is available via the Depreciation and capital allowances tool .

An explanation should be added to the final Guideline around why the rate is being reduced from 80c to 67c and how the rate was calculated.

The revised fixed-rate method actually increases the rate per hour of the current fixed-rate method by 15c (52c increased to 67c). It also removes the need for taxpayers to have a dedicated home office space, which many taxpayers do not have and allows them to claim a separate decline in value deduction for more costly items and equipment.

As noted in response to Issue 14 of this Compendium, the rate of 67c per hour was based on the Australian Bureau of Statistics' household expenditure survey with consideration of annual Consumer Price Index weightings for the 4 expenses comprising the rate; that is, electricity, gas, communications (including phone and internet charges), stationery and computer consumables such as printer ink and paper.

We will continue to review whether the rate is reflective of current running expenses incurred by taxpayers who are working from home.

If a taxpayer considers that the revised fixed rate of 67c per hour is less than what they are incurring on working from home expenses, they are able to claim the actual expenses they incur as a result of working from home.

For transparency, footnote 13 has been added to paragraph 23 of the final Guideline to explain what the fixed rate per hour was based on.

The same rate applies regardless of whether a business was entitled to full or partial input tax credits on home running costs.

While alluded to in paragraphs 18 to 22 of the draft Guideline, such an overt acknowledgment of these common situations has been omitted.

Paragraph 61 of the final Guideline provides examples of what a taxpayer will need to provide to show that they incurred part of the expense.

We recommend that where a taxpayer uses the revised fixed-rate method and their working from home claim is, for example, $600 or less, the taxpayer is not required to retain more documentation than the invoice or bills of the costs and the working from home hours.

The examples in paragraph 61 of the final Guideline are not intended to be an exhaustive list of what can be provided as evidence. There are other ways that taxpayers, including adult children, can show that they directly contributed to the cost of a bill.

The suggestion that a less than $600 per year 'safe harbour amount' be deductible without any evidence is, in effect, an alternative to what has been proposed and therefore outside the scope of this Guideline.

This Guideline does not apply to you if:

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the number of hours you use in the methodology set out in paragraph 26 of this Guideline exceeds the number of hours you actually worked at home, or

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you claim a separate deduction for any of the expenses listed in paragraph 23 of this Guideline.

Footnote 17 (now footnote 18 in the final Guideline) refers to paragraph 24 and 25 of the final Guideline because together these paragraphs explain when you cannot claim a separate deduction for expenses covered by the fixed rate per hour. This information is relevant to a taxpayer considering if they can rely on the Guideline.

The reference to timesheets, rosters, a diary or similar document kept contemporaneously in paragraph 58 of the final Guideline is not an exhaustive list. It states that a record of hours can be in the form of those. The reference to 'similar documents kept contemporaneously' covers records of time spent logged onto an employer's system or business system, time recorded in an app or any other similar record.

However, to make this clear, paragraph 58 of the final Guideline has been revised.

Many people who work from home also have additional household responsibilities and the long methods require a significant effort in paperwork and tracking on a daily basis, which adds to this burden, and which many people simply do not have the time in their day to do.

It may also create a burden for employers to provide a way for employees to record the hours they work from home.

The requirement to keep a record of the hours worked from home should not create a burden for employers. Individual taxpayers are required to keep the records necessary and if their employer does not provide them with a system to record their hours, they will need to keep records themselves. This can be done in a number of different ways provided the records are kept contemporaneously.

The record-keeping obligations proposed here would not accept an estimate of the days spent working from home as it does not constitute 'a record of the hours worked from home during the income year' as per Example 4 at paragraph 48 of the draft Guideline. This is onerous and does not reflect this reality of hybrid working where arrangements are regular rather than exceptional.

It is also inequitable; there does not appear to be an equivalent level of reporting required for businesses with hybrid working employees, for example, for their business deductions.

Under section 262A of the Income Tax Assessment Act 1936, businesses are required to keep all documents that are relevant to the ascertainment of their income and expenditure.

While the requirements for employees and business are slightly different, both are required to keep records of expenditure.

To ease the record-keeping burdens of those working from home and of small businesses, a better approach would be to keep the 80c per hour shortcut method.

In paragraph 59 of the draft Guideline, for the 2022-23 income year only, a different method is proposed for 6 months.

We suggest this will be confusing and difficult for taxpayers to comply, as in the 2022-23 income year there are 2 substantiation methods.

We propose that a representative record is kept for the full 2022-23 income year, which provides consistency.

The proposed timeframe does not allow enough time for tax agents to develop assistive tools for, and communicate with, their clients so they can organise their affairs and to minimise any confusion and provide more clarity.

The final Guideline should provide details on what the ATO would accept as a representative record so taxpayers can substantiate their claims accordingly.

Taxpayers who were using the current fixed-rate method also had to keep a record of the hours they worked from home which could be in the form of a diary or similar document kept for a representative 4-week period. While it is acknowledged that taxpayers previously using this method may not have kept these records as yet, the requirement for the first 8 months of the year is just to keep some records that are representative of their hours for the first part of the year so this should be possible for them.

There is no change for taxpayers claiming their actual working from home expenses.

Our communications from 1 July 2022 about working from home expenses have advised taxpayers to keep records of the actual hours they worked from home.

However, we acknowledge the difficulty of introducing this part way through the year, which is why we have included a transitional record-keeping requirement for the 2022-23 income year.

Our web content will be updated to include information on what a representative record may be.

Bills, invoices and receipts are often received by email which means they can be stored electronically and accessed that way.

Taxpayers who receive bills, invoices and receipts by mail still often keep them and, if they do not, they generally keep a credit card statement or can access one via banking apps or websites.

A credit card statement will be accepted as evidence, provided it has enough information about the expense that was incurred and that the taxpayer incurred it. For expenses such as energy, mobile phone and internet expenses, a credit card statement will generally show the information required.

If a taxpayer does not wish to keep a hard copy or an email with a copy of a bill, invoice or receipt attached, they can simply take a photo of it and upload it to the 'My Deductions' tool in the ATO app.

Taxpayers, practitioners and ATO officers should not have to digest and administer this 16-page manifest with its numerous criterions on how and when to apply the revised working from home shortcut rate.

In its current form, it is anticipated that the draft Guideline, when finalised, will create a substitution effect that will result in taxpayers passing on the supposedly 'simpler alternative' shortcut method in favour of the precursor, the 52c fixed-rate method.

If the ATO concurs with the World Health Organisation's assertion that the end of the COVID-19 pandemic is in sight, the ATO should keep it simple and timetable the sunset of the shortcut method. Taxpayers can simply revert to the 52c fixed-rate method or, if they prefer, adopt the actual expenses method. Conversely, if the ATO follows local health advice and is of a view that COVID variants will continue to emanate with warnings of new waves to come which will result in Australians continuing to work from home for an indefinite period, the ATO should not reinvent the wheel when there is already a functioning all-inclusive working from home shortcut rate.

The shortcut method outlined in PCG 2020/3 was a temporary method introduced to assist individuals forced to work from home during COVID-19 lockdowns. The rate was all inclusive, which meant that no separate deduction (such as for the decline in value of work-related assets and equipment) could be claimed in addition to the hourly rate.

PCG 2020/3 applied from 1 March 2020 and ceased to apply on 30 June 2022 (see paragraph 6 of the Guideline). As such, the shortcut method had an end date which our communications on this issue have explained.

The 52c rate method outlined in PS LA 2001/6 was available from 1 July 1998 to 30 June 2022. This method is not available for the 2022-23 income year and later income years. The 52c fixed-rate method required taxpayers to have a separate dedicated home office space. The rate per hour was based on the costs associated with working at home in a separate room.

The revised 67c fixed rate that is available from 1 July 2022 does not require taxpayers to have a dedicated home office space and also allows those who are unable to set up a separate room in their house to access the revised 67c fixed rate (subject to the relevant requirements being satisfied).

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It will supersede PCG 2020/3, which offered an alternative to the approach in PS LA 2001/6.

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PS LA 2001/6 provides that taxpayers can prove their deductible (work) use proportion by providing a reasonable estimate if the running expense is small and the taxpayer can demonstrate that the estimate was reasonably likely.

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Example 2 of the draft Guideline is an arrangement where relief will not be available which would appear to be permissible under PS LA 2001/6.

Paragraph 17 of the final Guideline states that taxpayers will no longer be able to rely on the information included in PS LA 2001/6 under the heading '5. Special rules for home office running expenses' to calculate their deduction for expenses incurred as a result of working from home. The paragraphs under this heading allow taxpayers to use the fixed rate of 52c per hour for their lighting, heating, cooling, cleaning costs and the decline in value of home office furniture and furnishings in the dedicated home office space used for work.

While we are considering whether the remaining content covered in PS LA 2001/6 would be better as web content, there is no consideration being given to changing the principles covered by that content. As such, taxpayers will be able to prove their deductible (work) use proportion of their actual expenses by providing a reasonable estimate in limited cases. In particular, this will only be the case where the claim for a particular running expense is small and the taxpayer can demonstrate that their estimate was reasonably likely under their given circumstances. For example, if mobile phone expenses are less than $50, an estimate is acceptable.

Example 2 in the final Guideline has been included to explain the concept outlined in paragraph 6 of the draft Guideline.

Footnote 7 in paragraph 6 of the final Guideline, explains objections regarding working from home expenses calculated using the shortcut method and the fixed-rate method are, and have been, dealt by us in the same way.

In terms of the changes to the record-keeping requirements in PS LA 2001/6 as opposed to the final Guideline, the requirement to keep records of hours worked from home for the entire income year (as opposed to records for a 4-week representative period or an estimate as per Example 2 in the final Guideline) is to ensure that taxpayers keep contemporaneous records of the hours worked. This was also the record-keeping requirement for the shortcut method (see paragraph 28 and Example 5 in PCG 2020/3).

The final Guideline provides taxpayers with a simple method for calculating the deductible portion of additional running expenses on a fair and reasonable basis. There is also no longer a requirement to have a separate home office space and deductions for the decline in value of any depreciating assets used while working from home (for example, a laptop) can be claimed separately.

The final Guideline also allows us to address the compliance risk associated with apportioning working from home expenses. Our compliance data indicates that taxpayers often incorrectly apportion expenses, such as the expenses covered by the fixed rate per hour or fail to apportion such expenses at all.

The revised fixed rate is optional. Taxpayers with high working from home expenses can claim the actual additional running expenses they incur as a result of working from home if that allows them to claim a larger deduction.

It is expected that going forward, many taxpayers will use the actual method to calculate their working from home expenses.

It has been amended to clarify.

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kept the receipts to substantiate the original cost and acquisition date

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did not maintain a depreciation schedule, and

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did or did not have a dedicated work area.