If you run a virtual business you know how much time and effort you spend to make it a success.
Like some virtual businesses, you might be running your company with people spread out all across the country or even the world.
Accounting and bookkeeping might be the last thing on your mind day to day, but it’s often crucial to keeping your business running efficiently and effectively.
What some business owners and their employees may be missing out on is claiming certain business expenses if they work from home (WFH).
Since the COVID-19 pandemic, the Federal Government has changed the rules around claiming WFH business expenses. This includes what you can claim, the amount you can claim per hour, and your bookkeeping obligations.
Let’s dive into the two methods authorised by the ATO: the fixed rate method and the actual cost method.
Please note that the shortcut method, allowing those that WFH to claim 80c per hour for business-related expenses, was a temporary measure and expired after the 2021-22 financial year.
Working from home and the increased fixed rate method
The revised fixed rate method was announced by the ATO in February 2023 and covers the 2022-2023 financial year. The amount you can claim per work hour has increased from 52c to 67c. The fixed rate method covers work-related portions of your gas and electricity, phone and internet, stationery, and computer or related consumables, such as printer ink or paper.
If you want to claim asset depreciation, repairs, or costs relating to cleaning, this must be done separately. Another significant change is that you don’t need to have a dedicated office space to be eligible – you could even work from the couch!
The biggest change involves record keeping. Using this method, you’ll be required to record all the hours worked from home for the entire income year; the ATO will not accept estimates. They need to be in the form of traditional or Xero timesheets, rosters, diaries/logs, or billable hour tracking sheets.
The ATO will not accept combined statements; they’ll need to see individual receipts for each bill you intend to claim (e.g. a separate phone bill and electricity bill.)
If you have employees, it’s critical that you remind them they cannot claim anything you have already reimbursed them for, such as paying for their internet.
The alternative: the actual cost method
The actual cost method hasn’t changed since last financial year, so the requirements remain the same: keeping detailed records of all work-related portions of their expenses and how many hours they have worked according to timesheets/time trackers etc. You can also claim cleaning expenses if you maintain a dedicated office space.
If you buy an asset worth less than $300, you can claim an immediate deduction. If the asset is worth more than $300, you can claim a deduction for the decline in value of a depreciating asset, e.g. something that loses value over time.
Keeping up with the actual cost method takes a lot of admin – so weigh up if the added time cost is worth the higher amounts you could claim.
Calculating depreciation or a decline in value
First of all, you can only claim depreciation for the proportion of time you use the asset for work. If you use a laptop for work 80% of the time, you can only claim 80% of the depreciation.
You can claim this over the life of the item. The ATO has a special tool to help you calculate depreciation, which you can access here.
For business owners, you can also use the simplified depreciation rules. Note the instant asset write-off expired on 30 June 2023.
Does all this sound complicated?
There’s nothing simple about tax, depreciation, and claims, believe us!
That’s why having a bookkeeper to give you advice on how to set up your record keeping through cloud accounting like Xero, and how to get as much as possible back on your return using these methods can be worth their weight in gold.
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