The Tax Institute welcomes the opportunity to make a submission to the Australian Taxation Office (ATO) in relation to Draft Practical Compliance Guideline PCG 2022/D4 Claiming a deduction for additional running expenses incurred while working from home – ATO compliance approach (the draft PCG).
In the development of this submission, we have closely consulted with our National Taxation of Individuals Technical Committee to prepare a considered response that represents the views of the broader membership of The Tax Institute.
The Tax Institute supports the ATO’s recognition of contemporary working from home (WFH) arrangements and the difficulties that taxpayers may encounter in ascertaining their WFH claims. We welcome the removal of the dedicated workspace requirement as it will cater for contemporary living arrangements, modern house designs, and enable more taxpayers to access a simplified methodology for calculating their WFH claims that the 80 cents shortcut method provided. However, we have significant concerns that the ATO’s requirement for taxpayers to incur additional expenses is beyond the legislative requirements contained in section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997).
The purpose of the draft PCG is to provide an administrative concession for taxpayers who have incurred losses or outgoings when WFH. Taxpayers can incur losses and outgoings when WFH that satisfy the requirements of section 8-1 of the ITAA 1997, however this does not always mean that the taxpayer will incur additional expenditure as a result of WFH. The draft PCG appears to impose an extra prerequisite for the taxpayer to incur additional expenses. This is beyond the remit of a Practical Compliance Guideline (PCG) and is not consistent with the law as it currently stands. We therefore recommend that the draft PCG exclude any additional obligations beyond the legislative requirements and instead uses the wording contained in section 8-1 of the ITAA 1997.
It is paramount that the new administrative approach is well understood by taxpayers and tax practitioners before it comes into effect. If the finalisation of the draft PCG is close to the holiday period surrounding Christmas and the New Year, a wide section of the public may not become aware of the change in requirements until a later point in time. Any delays will increase the risk that taxpayers may inadvertently forgo claiming genuinely incurred expenses as they were not provided with sufficient time to ensure their record keeping processes were fit for purpose. We recommend that if the draft PCG is not finalised within a month of the application of the new rules, the concessional substantiation requirements should be extended. This will allow taxpayers and tax practitioners to understand and correctly apply these requirements