Understanding Home Office Deductions in Australia
If you work from home, you may be able to claim a tax deduction for the costs you incur. The Australian Taxation Office (ATO) offers two methods to calculate your home office deduction: the fixed rate method and the actual cost method.
Fixed Rate Method (67 Cents Per Hour)
For the 2025-26 income year, the ATO's fixed rate method allows you to claim 67 cents per hour worked from home. This rate covers:
- Electricity and gas for heating, cooling, and lighting
- Decline in value of home office furniture and equipment
- Repairs and maintenance of home office furniture and equipment
- Phone and internet expenses
When to use: The fixed rate method is best if you don't have high home expenses or prefer a simple calculation. You only need to track your hours worked from home.
Actual Cost Method
The actual cost method allows you to claim the work-related portion of your actual running expenses. This usually results in a higher deduction if you have significant home expenses.
What You Can Claim:
- Occupancy expenses (rent, mortgage interest, rates, insurance): Apportioned by floor area only
- Running expenses (electricity, gas, repairs, cleaning): Apportioned by floor area and time used
- Phone and internet: Apportioned by floor area as a proxy for work use
- Depreciation: Decline in value of furniture and equipment, apportioned by floor area
Example: If your home office is 15m² out of a 150m² home (10%), and you work from home for 2,000 hours per year (approximately 23% of the year), you would claim:
- 10% of occupancy expenses (rent, rates, insurance)
- 2.3% of running expenses (10% × 23% = 2.3%)
- 10% of phone/internet costs
Record Keeping
To claim home office deductions, you must keep proper records:
- A diary or timesheet showing the hours you worked from home
- Receipts and bills for expenses (if using actual cost method)
- Evidence that the expense was for work-related purposes
- Records of the floor area of your home office and total home area (if using actual cost method)
What You Cannot Claim
- Coffee, tea, milk, and other general household items (even if consumed while working)
- Occupancy expenses like mortgage payments or rent if you're an employee (except mortgage interest using actual cost method)
- Items already reimbursed by your employer
- Capital expenses for purchasing furniture (but you can claim depreciation over time)
- Costs of initial setup or renovations to create a home office
Who Can Claim Home Office Deductions?
Home office deductions are available to a wide range of workers:
- Employees who work from home (whether occasionally or full-time)
- Contractors and consultants operating from home
- Self-employed individuals and sole traders
- Small business owners running their business from home
Important: You cannot claim a deduction if your employer has already reimbursed you for the expense, or if you're simply taking a lunch break at home between attending work at different locations.
Choosing the Right Method
| Method | Best For | Record Keeping |
|---|---|---|
| Fixed Rate (67¢/hr) | Simple situations, occasional WFH, low home expenses | Just track hours worked from home |
| Actual Cost | High home expenses, dedicated home office, full-time WFH | Keep all receipts, bills, and records of floor area |
You can switch between methods from year to year, but you must use only one method for each income year. Calculate your deduction using both methods to see which one gives you the best result.