Bill Nussbaum

Employees working from home (WFH) need to familiarise themselves with new changes introduced by the Australian Taxation Office (ATO) on calculation methods for claiming tax deductions, according to HLB Mann Judd Sydney tax consulting director, Bill Nussbaum.

The warning comes ahead of the 31 October general deadline for the lodgement of self-prepared individual income tax returns.

Mr Nussbaum said in the wake of COVID, the ATO introduced a simplified short-cut method for claiming WFH expenses, whereby taxpayers were able to claim 0.80c per hour. However, this will not be available for the 2023 year.

“Taxpayers wishing to claim a WFH deduction can now only use the pre-existing fixed rate or actual cost methods. A lot of people won’t be aware of the changes which is concerning given the ATO has indicated work-related expenses are an area of focus this year,” he said.

The ‘fixed rate method’ has been available for a number of years, however the rate claimable has increased from 0.52c to 0.67c per hour WFH. This method takes into account the running expenses when WFH, such as home and mobile phone and internet costs, electricity, gas and consumables, such as stationery items and other office equipment.

The ‘actual cost method’ is based on the real cost incurred, and while it can result in a higher deduction, it can be more technical and cumbersome.

“Most people WFH will apply the ‘fixed rate method’ as it’s more straight-forward. However, the 0.67c rate per hour is intended to cover a lot of expenses so you can’t then claim expenses in addition to this. Some may inadvertently claim expenses twice.

“The ‘actual cost method’ calculation requires a more granular level of detail, such as cost per unit of electricity, for example. This method also requires taxpayers to be maintain records of various expenses during the year, and work-related usage,” he said.

The ATO has stated that for calculating the actual cost method, taxpayers can work out work-related expenses using records for the entire year or over a four-week period that represents their pattern of work usage, in determining a percentage of costs.

Other tax lodgement considerations include claiming on depreciation of assets in WFH duties, which can include a new desk, chair and any other equipment required, this is in addition to using the 0.67c fixed rate method. It is also available for the actual cost method.

For anyone running a business from home, there are also occupancy costs, such as rent or mortgage repayments, council rates, insurances, water and land taxes.

“However, it’s important to be aware that if you do claim occupancy expenses, there will be CGT implications when you sell the property.

“Evidently, there are a number of areas for taxpayers, particularly those WFH, that need to be assessed in the lead up to the tax deadline. People should familiarise themselves with the changes that impact them, and if they are still unsure, seek advice from a qualified tax professional,” said Mr Nussbaum.

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Bill Nussbaum

With an estimated three million people adjusting to Higher Education Contribution Scheme (HECS) indexation rate increases, many Australians living and working overseas remain unaware of their HECS repayment obligations, according to tax consulting director at HLB Mann Judd Sydney, Bill Nussbaum.

From 1 July 2023, university graduates earning more than $51,550 per year are subject to an increase in repayment thresholds, reflecting the higher rate of inflation. Australian taxpayers working abroad are also now subject to a HECS repayment, having previously been exempt prior to 1 July 2017.

“In the past, they’ve been excluded from paying the HECS debt. People naively thought they could move overseas and not worry about the debt, but now, they need to declare any foreign income earned to the ATO.

“Previously, they haven’t been required to lodge a tax return in Australia; now, the rules have changed where they are required to disclose their income for HECS purposes, even though it’s not taxable and make a HECS repayment.

“It’s a way for the government to recoup money from people living overseas. The problem is it’s not very well known and hasn’t been widely communicated. It’s a sleeping giant,” he said.

Taxpayers who have a HECS debt and plan to live and work overseas are required to update their contact details and submit an overseas travel notification within seven days of leaving Australia (if you have an intention to reside overseas for 183 days or more in any 12 months), and lodge their worldwide income or a non-lodgement advice.

Mr Nussbaum has seen an increasing number of clients – largely the parents of university graduates and students – seek advice on how best to manage the increased indexation rates, particularly given broader cost of living pressures. The indexation rate increased from 3.9 per cent last year to 7.1 per cent, representing a 12-fold increase since 2021.

“Parents might think they would prefer their children owe them money rather than the government, but a lot of parents don’t understand the system very well.

“Over the last few years, it hasn’t been front of mind for most but with the increased rates coming into effect, people had to consider paying some of it off to reduce the impact of the new 7.1 per cent rate,” he said.

Mr Nussbaum said there remains confusion for many on the application of indexation rates, particularly given that historical low rates meant many were oblivious to the impact of the debt.

The indexing is applied on 1 June and does not account for withholding amounts paid throughout the year. For example, withholding amounts relating to HECS throughout 1 July 2022 – 1 June 2023 will not reduce the balance prior to indexing on 1 June 2023 as these repayments are captured on lodging an FY2023 tax return.

“There will likely be another increase next year, so people will need to assess their individual circumstances and determine whether they want to pay the debt down in combatting the increased indexation or prefer money in their account. It is really dependent on their working and financial situation,” he said.

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