The ATO has released a draught guideline on the revised fixed rate method for calculating additional work-related running expenses, which will replace the previous fixed rate method and the shortcut method for calculating the deduction for working from home (WFH) costs, respectively, as of 1 July 2022.
There were formerly three ways for taxpayers to deduct home-based business expenditures before 1 July 2022:
- The actual costs method, which required figuring out one’s actual work-from-home costs;
- The fixed rate system enabled a taxpayer to deduct 52 cents per hour for every hour they worked from a home office, including costs for utilities, cleaning, and depreciation. In addition, the taxpayer can deduct the cost of using the internet for work, as well as the cost of using a cell phone or home phone for business purposes, the cost of paper and other office supplies used for work, and the cost of replacing a computer or laptop that has lost value.
- During the COVID-19 epidemic, many workers had to adjust to working from home quickly. The introduction of the shortcut approach facilitated this transition. This system allowed taxpayers to deduct 80 cents per hour for every hour they worked from home, including everything from the cost of a phone and internet connection to the depreciation of office furniture and electronics to the cost of heating, cooling, and lighting the space.
The ATO has altered the fixed rate technique, making the 80c per hour shortcut method obsolete as of 1 July 2022. The ATO claims that the new fixed-rate process allocates extra operating costs “on a fair and reasonable basis” by applying a fixed rate of 67c per hour. Not only is this cost lower than the 80c per hour utilised by the shortcut technique, but it is also intended to cover energy expenses (electricity and gas), internet, mobile, telephone, stationery, and computer consumables.
Under the proposed fixed rate system, other operating expenses not explicitly specified above can still be claimed as separate deductions, including the loss in value of any depreciating assets related to operations.
The new fixed rate technique requires taxpayers to multiply the hours they spent working from home during the income year by 67c per hour to determine their total deduction. A final determination can be calculated by adding this number to the loss in value of depreciating assets and any other operating expenditures not covered by the 67c base rate.
How to Keep Track of Your Spending?
Keeping track of your spending is easy, provided you have the self-control to avoid making any hasty purchases and the patience to document every cent in your pocket. Following these easy steps, you will never be short of money when you need it most.
- Check how much you owe right now.
Compile a detailed accounting of your regular outlays. These costs can be anything from groceries to mortgage payments to car payments to credit card payments to internet. Get started by writing them down without trying to count them just yet, once you’ve tallied everything up and are satisfied with the total. Commence assigning numbers to them. If possible, spend no more than the maximum allowed on any given expense. Due to the regularity of these outlays, you can estimate their total costs very accurately. Compile a list of them. You should now put aside this sum of money every month to cover these recurrent costs.
- Don’t include personal costs when filing your taxes.
The hassle of doing one’s taxes lies in the fact that one must be careful not to include any costs that fall under the category of “personal” to avoid overpaying. It would be challenging to keep an eye on all of this. The main thing is using a professional tax agent, chartered accountant or cpa who can walk through what is and what isn’t tax deductible based on your exact situation. Don’t let loans get you down.
When you need money quickly, a loan can be a good option if you’re itching for a fancy new toy or some high-priced exercise gear for the house. It’s best if you put the money aside in advance. You should only take on debt or borrow money if you expect to receive a benefit in return. To use an analogy, think about starting an online business. Don’t get sucked in by the plethora of loan options available online and even in your backyard if you aren’t financially savvy.
But if you need a loan, the best option is to go through a reputable financial institution. Those loan companies with an A+ rating from the BBB is more likely to be trustworthy. Verify the total amount you will be charged in addition to the lent sum. Before signing the loan agreement, fully grasp its terms and circumstances. Avoid unsecured loans at all costs; they typically carry exorbitant interest rates and a slew of additional fees and taxes. If in doubt ask IMT Accountants and Advisors.
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What Happens When You Roll Off Your Fixed-Rate Mortgage
