Nov 2022 Round Up - The new fixed rate work from home deduction

The ATOs approach to the fixed rate deduction when working from home - what's covered and when you should and shouldn't use the fixed rate.

Plus, clearing the confusion on Director IDs following the release of new guidance from the ATO and an update from the ABRS.

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Inside this month Michael Carruthers (Tax Director) and Matthew Tse (Tax Adviser) bring you:

Working from home deductions from 1 July 2022

PCG 2022/D4 Claiming a deduction for additional running expenses incurred while working from home - ATO compliance approach sets out the ATO’s proposed approach to individuals claiming deductions for the additional running costs incurred from 1 July 2002 when working from home, which is when the temporary ‘shortcut’ method relating to COVID-19 ceased to apply.

From 1 July 2022, the ATO states that taxpayers who are working from home can claim deductions based on their actual expenses or they can potentially adopt a revised fixed rate method which uses a rate of 67 cents per hour.

In order to use the revised fixed rate method, the taxpayer must meet the following basic conditions:

• They must be working from home while carrying out their employment duties or carrying on their business on or after 1 July 2022;
• They must be incurring specific additional running expenses which are deductible under section 8-1 as a result of working from home; and
• They must keep and retain relevant records in respect of the time they spend working from home and for the additional running expenses they are incurring.

The running expenses covered by this method are:

• Energy expenses (electricity and/or gas) for lighting, heating/cooling and electronic items used while working from home;
• Internet expenses;
• Mobile and/or home telephone expenses; and
• Stationery and computer consumables.

While no separate deduction can be claimed for the expenses listed above if using the revised fixed rate method, taxpayers can potentially still claim depreciation deductions for assets used while working from home (e.g., a computer, desk, office chair etc) along with any other running expenses not listed above, provided the normal deductibility requirements are satisfied.

Importantly, the taxpayer does not need to have a separate home office or dedicated work area set aside in their home in order to rely on the fixed rate method.

The ATO confirms that if more than one taxpayer in the household is working from home at the same time, each taxpayer will be able to apply the fixed rate method if they separately meet the requirements set out above.

The ATO indicates that it has high expectations when it comes to keeping records when taxpayers want to apply the revised fixed rate method.

For example, for the 2023-24 and later income years, the ATO expects the taxpayer to keep a record for the entire income year of the number of hours they worked from home during that income year. An estimate for the entire income year or an estimate based on the number of hours worked from home during a particular period will not be accepted.

Having said that, for the 2022-23 income year only, taxpayers need to keep:

• A record which is representative of the total number of hours worked from home during the period from 1 July 2022 to 31 December 2022; and
• A record of the total number of actual hours the individual worked from home for the period 1 January 2023 to 30 June 2023.

The PCG has only been issued in draft form at the moment and we will provide further updates when the PCG is issued in final form or if the ATO provides additional guidance in this area.

Clarity on director IDs for directors who have resigned

Note: The ABRS have stated that they will not take action against directors who have not met the 30 November deadline but have applied by 14 December 2022.

There has been some confusion over the past few months as to whether an individual who was a director of a company between 4 April 2021 and 31 October 2021 but who resigned as a director by 30 November 2022, would need to obtain a director ID. To clarify, the Commissioner has issued two draft legislative instruments.

ABRS 2022/D1 confirms that individuals who have resigned as a director of a company (and who do not hold other directorships etc.) on or before 30 November 2022 (30 November 2023 for directors of Indigenous corporations) are not required to obtain a director ID.

ABRS 2022/D2 confirms that individuals who have resigned as a director of an entity that is dealt with under the Corporations (Aboriginal and Torres Strait Islander) Act 2006 are not required to obtain a director ID if they resign on or before 30 November 2023.

However, if an individual who is impacted by this change later becomes a director of a company, they will be required to obtain a director ID before they are appointed.

Legislation for the skills boost, training boost and digital games offset

Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 introduces legislation to Parliament for a number of previously announced measures. These include:

• The introduction of a digital games tax offset. This is a refundable tax offset for companies equal to 30% of the company’s total qualifying Australian development expenditure, which is aimed at expenditure incurred in relation to the development of a game that is made available to the general public over the internet. The offset is capped at $20 million per company (or group of companies). The offset will be available for expenditure incurred from 1 July 2022.
• The skills and training boost, which provides small businesses (with aggregated annual turnover of less than $50 million) with access to a bonus deduction equal to 20% of eligible expenditure for external training provided to their employees. The additional deduction is available for expenditure incurred from 29 March 2022 until 30 June 2024.
• The technology boost, which provides small businesses with a bonus deduction equal to 20% of their eligible expenditure on expenses and depreciating assets for the purposes of their digital operations or digitising their operations. The bonus deduction is limited to $20,000 (e. on eligible expenditure up to $100,000) and applies to expenditure incurred from 29 March 2022 until 30 June 2023.
• Amendments to clarify that digital currencies (such as bitcoin) are not treated as a foreign currency for tax purposes even if they are adopted as a legal tender by a foreign country.
• The Commissioner will be given the power to make legislative instruments determining the kind of alternative records that can be kept and retained by employers to comply with FBT record keeping obligations. The aim is to reduce the compliance burden associated with gathering and retaining FBT records.

Enjoy!