Working from home? You could be missing out on tax deductions if you’re not claiming correctly. Whether you’re running a small business, freelancing, or just clocking in a few WFH days a week, the ATO lets you claim expenses, but only if you meet the rules.
This year, the ATO has updated the calculation method for work-from-home tax deductions. That shortcut method from the pandemic days? No longer valid. Now, youโll need to track your hours and know whatโs actually deductible, from electricity to internet to depreciation on your office equipment.
Letโs break down what work-from-home tax deductions are allowed and how businesses (especially small ones) can keep it simple, compliant, and effective.
What can you claim for work-from-home tax deductions?
The ATO allows small business owners to claim a combination of running expenses, occupancy expenses, and work-related equipment and tools. Hereโs how that might look in your home-based setup:
- Electricity and gas for heating, cooling, or lighting your work area
- Internet and phone costs linked to running your business
- Depreciation of office furniture or equipment such as computers, chairs and desks
- Cleaning costs for the area you use exclusively for work
- Occupancy expenses (only under the Actual Cost method), like rent, mortgage interest, council rates and home insuranceโif part of your home is set aside as your place of business
But you canโt claim costs that are purely personal or used by other members of your household. For example, if youโre claiming part of your internet costs, youโll need to estimate the business-use portion based on a reasonable calculation (like data usage or hours worked).
How do you calculate home office tax deductions?
When claiming work-from-home tax deductions in Australia, you have two options: the fixed rate method or the actual cost method. The ATO lets you pick the one that gives you the best deduction, as long as you can back it up with records. Here’s what each method really means and how to choose the one that fits your work-from-home setup best.
What is the fixed rate method?
The fixed rate method is all about simplicity. From April 2025, the ATO updated this method to a flat rate of 70 cents per hour worked from home. That covers:
- Electricity and gas for lighting, heating, cooling
- Internet and phone usage
- Stationery and computer consumables like ink and paper
Whatโs different now? You no longer need a dedicated home office. Even if you pull out your laptop at the kitchen counter, you can still claim the fixed rate, just as long as youโre actually doing income-producing work and keep a proper record.
Hereโs what youโll need to back up a claim under the fixed rate method:
- A daily record of hours worked at home (like timesheets or digital logs)
- Copies of utility bills and receipts to show that you’re incurring the relevant costs
- Keep in mind, you can separately claim deductions for things not included in the 70c/hour rate, like depreciation of office furniture or devices such as your monitor, keyboard, or ergonomic chair.
What is the actual cost method?
If youโve got time to crunch numbers and strong recordkeeping habits, the actual cost method lets you calculate your exact expenses. This method includes:
- Percentage of electricity and gas used for work
- Cleaning costs for a dedicated workspace
- Actual internet and mobile usage for work
- Depreciation on office equipment and furniture
Youโll have to work out the total bill, then calculate what part of that was really for business purposes. For example:
- If you use your home internet 40% of the time for work, and your monthly bill is $100, you can claim $40/month.
- For electricity, you might calculate usage by watts per device multiplied by hours used.
This method can lead to a bigger deduction, but it takes more legwork. Youโll need detailed records like floor plans to show work area size, bills, usage logs, and receipts.
Learn more from the ATO website.
Do you need a dedicated work area to claim work-from-home tax deductions?
Yes, if you’re using the actual cost method to claim work-from-home tax deductions in Australia, the ATO requires you to have a dedicated work area. This means a clearly defined space in your home thatโs used just for workโthink of it like a home office, not the kitchen table you share with your kidsโ art projects.
According to the ATO, a dedicated work area is a specific part of your home thatโs set aside exclusively for work and not used for personal purposes. It doesn’t need to be a separate room, but it can’t double as your lounge room or dining table outside work hours either.
Examples of a dedicated work area:
- A spare bedroom turned into a home office with a desk, monitor, and filing cabinet
- A corner of the living room with a semi-permanent workspace that no one else uses
Not a dedicated work area:
- Your kitchen bench, where you do a bit of admin between meals
- Your bed with a laptop (sadly, no matter how often weโve all done it)
Can you claim expenses if you work from home occasionally?
If you work from home only part-time, the rules change slightly. You may still claim a deduction under the fixed rate method, but you wonโt be able to deduct occupancy expenses unless you have that exclusive space used fully for work, even if it’s just for a few hours a week.
For example, James runs his e-commerce storeโs customer support from home twice a week. As long as his workspace is only used for work purposes during work hours, he may be able to claim a portion of the utility bills and internet via the fixed rate method, even if he uses that room as a guest bedroom too. But he wonโt be able to claim occupancy expenses unless that room is set aside 100% for work.
How do you keep receipts and records for work-from-home tax deductions?
The ATO expects you to back up every claim with proof. That means receipts, bills, logs, and notesโyep, it matters. Whether you use the fixed rate or actual cost method, you’ll still need to maintain solid written records to demonstrate how you calculated your claims.
Here’s a rundown of the types of records you should keep:
- Receipts or bills with supplier name, date, item/service, and amount paid (think: electricity bills, office desk invoices, printer receipts)
- Timesheets or diaries showing your work hours at home and how you use your space
- Phone and internet usage logs (if you’re apportioning your plan for work use)
- Home office floor plans or photos to indicate how the space is being used for business
- Loan or rental agreements if you’re working in a separate structure or portion of your home
Remember the golden rules
If youโre a small business owner or accountant handling remote work or part-time home office use, thereโs a smart and simple way to stay compliant and get the most out of your deductions, without the stress.
Hereโs what to remember:
- Pick your method wisely: The fixed rate method is currently set at 67 cents per hour. This covers utilities, internet, phone, and a bit of depreciation, but not rent or mortgage interest. If your work-from-home setup costs more than that, the actual cost method could suit you better.
- Keep your paperwork tidy: Hang onto those receipts, bills, and logbooks. That 4-week time tracking you did in February? Thatโs gold when itโs time to calculate your yearly hours.
- Your work habits matter: If youโre clocking in 9โ5 at your kitchen table, you might get more back with actual costs. If you’re doing a few hours a week or share your space with other family needs, fixed rate might be cleaner and less admin-heavy.
- Don’t forget one-off purchases: Office gear like desks, chairs, and monitors can be claimed over time with depreciation or all at once if under the instant asset write-off threshold (check the ATOโs current rules each year).
Frequently asked questions about work-from-home tax deductions
Can I claim rent for working from home as a tax deduction?
If you’re a renter and using a portion of your home as your principal place of business, then yes, you can claim a percentage of your rent. But if youโre just occasionally working from home, you likely canโt claim rentโespecially under the fixed rate method.
How do I calculate work-from-home hours for tax?
You need to keep a record of actual hours worked at home. The ATO asks for a four-week diary sample that reflects your usual pattern. Multiply weekly hours by the number of weeks you work in the year.
Is claiming actual costs better for home office tax claims?
It depends. Actual costs can result in higher deductions if your expenses are high, but they require more time and documentation. The fixed rate is simpler if your costs are consistent and you want to avoid administrative tasks.
