Hybrid Work Is Here to Stay. So Is ATO Scrutiny.
Since the shift to flexible and hybrid working arrangements became mainstream, working from home deductions have become one of the most commonly claimed items on Australian individual tax returns. They have also become one of the most frequently reviewed.
The ATO has identified working from home expenses as a key compliance focus area for the current tax season, noting that it sees errors in this category every year. Some of those errors involve people claiming expenses they simply cannot claim. Others involve people with legitimate expenses failing to keep the records required to support them.
The result in both cases is the same: the deduction is disallowed.
The ART case we covered in Blog 6 is a perfect example. The engineer working from home two days per week claimed $2,826 in home utility expenses, representing roughly 70% of his entire household utility bill. The ART disallowed it completely, finding there was no documentary evidence for the underlying expenses, and the apportionment percentage was not fair and reasonable for someone with a two-day-per-week work-from-home arrangement.
This blog explains how the two working from home methods work, what records you need, what you can and cannot claim, and how to make sure your deduction holds up if the ATO ever comes asking.
First: Are You Actually Eligible to Claim?
Before thinking about which method to use or how much to claim, you need to confirm you meet the basic eligibility requirements.
According to the ATO’s working from home expenses page, to claim a working from home deduction, you must:
- Be working from home to fulfil your employment duties, not just carrying out minimal tasks such as occasionally checking emails
- Have incurred additional running expenses as a direct result of working from home
- Have records to prove both the hours worked from home and the expenses incurred
If your employer provides all the equipment and tools you need and you have no additional costs because of working from home, you generally do not have a deductible expense to claim, even if you are physically located at home.
The Two Methods: Fixed Rate vs Actual Cost
The ATO provides two ways to calculate your working from home deduction. Choosing the right one depends on your circumstances, your record keeping, and how much your actual costs differ from what the fixed rate would give you.
Method 1: The Fixed Rate Method (70 cents per hour)
The fixed rate method allows you to claim 70 cents for every hour you work from home during the income year. For 2024-25 and 2025-26, the fixed rate is 70 cents per hour.
The 70 cents per hour rate covers the following additional running expenses automatically, meaning you cannot claim them separately on top of the hourly rate:
- Electricity and gas for heating, cooling, and lighting
- Internet expenses
- Phone usage (mobile and home)
- Stationery and computer consumables
This is important. If you use the fixed rate method, you cannot then claim these items separately elsewhere in your tax return. No double-dipping.
What is NOT covered by the 70 cents per hour rate and can still be claimed separately:
- The decline in value (depreciation) of home office furniture and equipment such as desks, chairs, computers, and monitors
- Repairs and maintenance of home office assets
- Cleaning expenses for a dedicated home office space
How the calculation works:
Simply multiply the total number of hours you worked from home during the income year by 70 cents.
For example, if you worked from home for 800 hours during the 2025-26 income year: 800 hours x $0.70 = $560 deduction
Then add any separate depreciation claims for furniture or equipment.
Record-keeping requirements for the fixed rate method:
You must have a record of the total number of hours you worked from home and the expenses you incur while working at home. Critically, an estimate of your hours is not acceptable. Wanda estimated the hours she worked from home during one period, and this was not accepted, meaning she could only claim for the months where she had kept actual records of her hours.
You must keep:
- A record of the actual hours worked from home for the entire income year, such as a timesheet, diary, calendar entry, or spreadsheet updated at the time of working
- At least one document evidencing each type of expense covered by the rate, for example, one electricity bill and one internet bill
Method 2: The Actual Cost Method
The actual cost method allows you to claim the actual work-related portion of every running expense you incur as a result of working from home. This method takes more effort to calculate and document, but may produce a higher deduction for people with significant home office costs or expensive, depreciating assets.
Under the actual cost method, you can claim the work-related portion of:
- Electricity and gas for heating, cooling, and lighting your work area
- Internet expenses
- Phone expenses (mobile and home)
- Stationery and computer consumables
- Depreciation of home office furniture, computers, monitors, and other equipment
- Cleaning expenses for a dedicated home office
- Occupancy expenses, such as rent or mortgage interest, but only if you have a dedicated area of your home used exclusively as a place of business (this applies more to self-employed people than employees)
How apportionment works under the actual cost method:
You work out your deduction by calculating the actual additional expenses you incur when working from home. For electricity and gas, you can work out the cost using the cost per unit of power you use, multiplied by the average units per hour for each appliance, equipment, or light you use.
For phone and internet, if you receive an itemised phone or internet bill, you need to work out your work-related use over a continuous four-week period and apply that percentage to the full year.
What the ART case teaches us about apportionment:
The engineer in the ART case claimed approximately 70% of his household’s total utility bill. The ART found this was neither supported by evidence nor fair and reasonable for someone working from home two days per week.
A useful starting point for calculating a reasonable apportionment under the actual cost method is to consider:
- What proportion of the year did you actually work from home? (Two days in a five-day working week is 40%)
- What proportion of your home’s floor area does your work area represent?
- Were the expenses genuinely additional, meaning would you have spent that money anyway even if you were not working from home?
If other members of your household who are not working from home are in the same room while you are working, you are not incurring additional costs for lighting, heating, or cooling in that room and cannot claim a deduction for them.
Record-keeping requirements for the actual cost method:
- A record of the actual number of hours worked from home for the entire income year
- A continuous four-week diary or log showing your usual pattern of working at home
- All receipts, bills, and documentary evidence for every expense claimed
- Records identifying the work-related portion of phone and internet use over a representative four-week period
What You Cannot Claim Under Either Method
Regardless of which method you use, there are certain expenses that can never be claimed as working from home deductions:
Occupancy costs for employees. Mortgage interest, rent, council rates and home insurance are generally not deductible for employees working from home, even if you have a dedicated home office. These expenses relate to the cost of owning or renting your home, not to the income-earning activities you perform there. The exception is narrow and applies primarily to self-employed people whose home is their principal place of business.
Private expenses that happen near your work area. If you bought a new television, air fryer, gaming console, or personal appliances and placed them in or near your home office, they are still personal expenses and cannot be claimed. The ATO has publicly called out this type of claim as one of the most common “wild” deduction attempts it sees each year.
Coffee, snacks, or meals consumed while working from home. These are private expenses regardless of the fact that you are working.
The cost of setting up a home office is a capital improvement. Renovations to create or improve a dedicated home office space are capital in nature and are not immediately deductible as working-from-home running expenses. In the ART case, the engineer’s attempt to claim home office renovation costs was specifically rejected.
Children’s education equipment. If a laptop or tablet is used partly for your children’s schooling and partly for your work, you can only claim the work-use portion, and children’s use reduces the deductible percentage accordingly.
The Dedicated Home Office Question
A dedicated home office is a room or area of your home set aside exclusively for work and not used for any private purpose. Having a dedicated home office opens up additional deductions under the actual cost method (such as cleaning costs and, for self-employed people, occupancy expenses) and allows the floor area method to be used for calculating running expense apportionment.
However, the keyword is “exclusively.” A spare bedroom that sometimes doubles as a guest room, a dining room table used for both meals and work, or a lounge room corner where other household members also sit does not constitute a dedicated home office. If your workspace has any private use, occupancy cost deductions are not available to you as an employee.
Depreciation of Home Office Assets
Under both methods, you can claim a separate deduction for the decline in value (depreciation) of assets used for work, such as computers, monitors, printers, desks, and chairs. How this works depends on the cost of the item:
Items costing $300 or less that are used exclusively for work can be written off in full in the year of purchase.
Items costing more than $300 must be depreciated over their effective life. The ATO’s depreciation and capital allowances tool can help you calculate the deductible amount each year.
If an asset is used for both work and private purposes, you can only claim the work-use portion of its depreciation. For example, if your $2,400 laptop is used 60% for work, you can claim depreciation on $1,440 (60% of $2,400) each year over its effective life.
Using the ATO’s Home Office Expenses Calculator
The ATO provides a free home office expenses calculator that can help you work out your deduction under both the fixed rate and actual cost methods. It is worth using this tool when preparing your return to cross-check your calculations before lodging.
You can also use the myDeductions feature in the ATO app throughout the year to keep track of your expenses and hours as you go, rather than trying to reconstruct everything at tax time.
A Side-by-Side Comparison
| Fixed Rate Method | Actual Cost Method | |
| Rate | 70c per hour worked from home | Actual expenses incurred |
| Electricity, internet, phone | Covered by the hourly rate, cannot claim separately | Claim actual work-related portion |
| Depreciation of assets | Claimed separately on top of the hourly rate | Claimed separately |
| Occupancy costs (rent, mortgage) | Cannot claim | Can claim if dedicated home office (primarily self-employed) |
| Records required | Hours log, one bill per expense type | Hours log, diary, all receipts and bills |
| Best suited to | Simpler arrangements, lower actual costs | Higher actual costs, dedicated home office |
A Practical Record-Keeping System That Works
The most common reason working from home claims are disallowed is not that the expenses are illegitimate. It is that the taxpayer cannot prove them. Here is a simple system that satisfies the ATO’s requirements under either method:
Step 1: Keep a daily log. Use a spreadsheet, a calendar app, or the ATO’s myDeductions tool to record the time you start and finish working from home each day. Do this in real time, not at the end of the month from memory.
Step 2: Keep your bills. Save at least one bill per type of expense (electricity, internet, phone) for the year. For the actual cost method, keep all bills for the entire year.
Step 3: Document the business-use percentage for mixed-use items. For your phone and internet, review one month’s usage records to establish what percentage of your calls, data, or usage is work-related, and apply that percentage consistently.
Step 4: Keep receipts for work equipment. Any desk, chair, computer, or monitor you purchased for work purposes needs a receipt so you can calculate depreciation.
Step 5: Keep everything for five years. The ATO can audit returns up to five years back. Records must be retained for five years from the date you lodge the relevant return.
How JMB Consultants Can Help
Working from home deductions are genuinely available to many Australian employees and self-employed individuals, and claiming them correctly is worth the effort. At JMB Consultants, we can help you:
- Choose the right method (fixed rate or actual cost) for your circumstances
- Calculate a fair and reasonable apportionment for mixed-use expenses
- Confirm which expenses qualify and which do not
- Set up a record-keeping approach that works throughout the year, not just at tax time
- Review your prior year returns if you think you may have under-claimed or over-claimed
Contact us before you lodge your 2025-26 return to make sure your work-from-home deductions are accurate, well-documented, and compliant.
The information in this blog is general in nature and does not constitute personal tax advice. Please seek professional advice to confirm how these rules apply to your specific circumstances.