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More than five million Australians worked from home at some point in the 2024–25 income year. A significant portion of them claimed less than they were entitled to — or claimed expenses incorrectly and triggered an ATO audit. The rules around home-office deductions changed materially from 1 July 2022, when the ATO revised its fixed rate method and scrapped the shortcut rate that had applied during the COVID years. Those revised rules continue to apply for the 2025–26 income year. If you work from home and haven’t reviewed your deduction method recently, this guide will tell you what the current rules are, which method gives you the larger deduction, and — critically — what records the ATO actually requires you to keep.
70¢/hr
Fixed rate (2025–26)
PCG 2023/1
ATO Practical Compliance Guideline
2 methods
Fixed rate vs Actual cost
Diary
4-week representative record required
📋 Laws and Official Sources
The Two Methods: Fixed Rate vs Actual Cost
The ATO currently allows two methods for claiming working-from-home deductions. You choose one method per income year — you cannot mix and match within the same year. The right choice depends on your actual expenses, your working hours, and how much record-keeping you are willing to do.
| Feature | Fixed Rate Method | Actual Cost Method |
|---|---|---|
| Rate / basis | 70 cents per hour worked from home | Actual expenses incurred, apportioned to work use |
| Dedicated home office required? | No — a kitchen table qualifies | No — but easier to calculate if you have one |
| Records required | Total WFH hours for the year (diary or timesheet evidence, or 4-week representative record) | All actual expense receipts; floor area calculation; usage diary |
| Separately claimable on top | Decline in value of depreciating assets (e.g. work chair, standing desk, monitor) PLUS phone/internet if not already covered | N/A — all actual expenses calculated separately |
| What the rate covers | Electricity and gas for heating/cooling/lighting; internet; phone; stationery; computer consumables | All of the above, calculated on actual basis |
| Best for | Those working moderate hours from home with lower actual expenses, or those who prefer simplicity | Those with high home-running costs, large dedicated office spaces, or who work from home full-time |
Fixed Rate Method: 70 Cents Per Hour
Under the fixed rate method (set out in ATO Practical Compliance Guideline PCG 2023/1), you claim 70 cents for every hour you work from home during the income year. The rate covers:
- Electricity and gas used for heating, cooling, and lighting your home workspace
- Internet expenses (the work-related portion of your home internet)
- Mobile and home phone expenses (the work-related portion)
- Stationery and office consumables (pens, paper, printer ink/toner)
- Computer consumables (USB drives, printer cartridges)
Because the fixed rate bundles these items together, you cannot also claim them separately. If you use the fixed rate method and then also separately claim your full phone bill as a deduction, the ATO will disallow the double-up.
What you can still claim separately, in addition to the fixed rate:
- Decline in value of depreciating assets you use for work — desk, ergonomic chair, monitor, keyboard, mouse, headset, webcam. These are claimed using the depreciation rules, not the fixed rate.
- Repairs and maintenance of work-related depreciating assets.
- Cleaning costs for a dedicated work area (where the area is used solely for work).
Calculating Your Fixed Rate Deduction
Simple multiplication: Total WFH hours × $0.70 = deduction amount.
If you worked from home for 1,000 hours during the 2025–26 income year (roughly 20 hours per week for 50 weeks), your fixed rate deduction is $700. Add to that any separately claimable depreciation on work equipment.
You must keep a record of the actual number of hours you worked from home during the income year — not an estimate, and not a figure derived from general working patterns. From 1 March 2023 onwards, a 4-week representative diary is acceptable — but only if your working-from-home pattern is regular and consistent. If your WFH pattern varies (some weeks 2 days, others 4 days, others not at all), the ATO requires a complete record for the whole year. Timesheets, rosters, diary entries, or employer records all work. The ATO will ask for this if your claim is reviewed.
Actual Cost Method: When It Pays More
The actual cost method allows you to claim the actual, apportioned work-related portion of each home running expense. It is more complex and requires more record-keeping — but for some workers, particularly those working full-time from home in a large dedicated space, it can produce a significantly higher deduction.
The key expenses claimable under the actual cost method:
| Expense | How to Apportion | Evidence Required |
|---|---|---|
| Electricity and gas | Floor area of work space ÷ total floor area × hours used for work ÷ total hours | Energy bills for the full year; floor plan measurements |
| Internet | Work-related data usage as a % of total household internet usage | Internet bills; work usage diary or employer IT records |
| Phone | Work calls and data as a % of total usage — assessed over 4 representative weeks | Phone bills; 4-week diary of calls |
| Cleaning of work area | Proportion attributable to the work area | Receipts; area calculation |
| Decline in value of depreciating assets | Work-use % of the item’s decline in value for the year | Purchase receipts; usage diary |
| Repairs and maintenance | Work-use % | Receipts |
| Occupancy costs (rent/mortgage interest, council rates, insurance) | Only claimable if you have a dedicated space exclusively used for work — see CGT warning below | Lease/mortgage documents; floor plan; evidence of exclusive use |
Which Method Gives You a Bigger Deduction?
There is no universal answer — it depends entirely on your individual circumstances. But here is a worked comparison for a typical scenario:
Example: Jamie, an accountant, works from home 3 days per week (about 24 hours per week, 48 weeks per year = 1,152 WFH hours). Jamie has a separate room used as a home office (roughly 10% of total home floor area), pays $3,600 per year in electricity and gas, $1,200 for home internet, and $960 for their mobile phone. Jamie has work equipment (laptop, monitor, desk, chair) purchased over the past 3 years with a combined depreciation claimable amount of $800.
| Item | Fixed Rate Method | Actual Cost Method |
|---|---|---|
| Fixed rate: 1,152 hrs × $0.70 | $806 | — |
| Electricity/gas: $3,600 × 10% (area) × 60% (WFH time) | — | $216 |
| Internet: $1,200 × 40% (work use) | — | $480 |
| Phone: $960 × 30% (work use) | — | $288 |
| Depreciation on equipment | $800 | $800 |
| Total deduction | $1,606 | $1,784 |
In this scenario, the actual cost method produces a slightly larger deduction — but the difference is modest and comes at the cost of significantly more record-keeping. For Jamie, the choice might reasonably be the fixed rate method for the simplicity. A taxpayer who works from home full-time with a large dedicated office and high energy costs might find the gap much larger in favour of actual cost.
ATO Audit or Tax Dispute? A Tax Lawyer Can Help.
If the ATO has queried your home office claims, issued an amended assessment, or you’re uncertain whether your deductions are legally defensible, a tax law solicitor can assess your position and respond on your behalf.
Records the ATO Requires — Exactly
Record-keeping is where most home office claims fall apart under scrutiny. The ATO is explicit about what it expects:
For the fixed rate method:
- A record of the total number of hours you worked from home during the income year. This can be timesheets, a diary, roster records provided by your employer, or a 4-week representative log (if your pattern is consistent and regular throughout the year).
- At least one document evidencing each of the expenses covered by the fixed rate (e.g. a phone or internet bill showing the service exists at your home address, an energy bill). You do not need full-year receipts for these items — but you do need something.
For the actual cost method:
- Full-year bills and invoices for every expense claimed.
- Floor area measurements (your home office area and the total home area).
- A usage diary or log for phone and internet — either a representative 4-week period or the full year.
- Purchase receipts for all depreciating assets claimed, including the purchase date and cost.
Keep a simple spreadsheet or note in your phone logging the days and approximate hours you work from home each week. At the end of each month, total it. At tax time, you have a complete, credible record that you created contemporaneously — far more convincing than an end-of-year reconstruction. For assets, take a photo of the receipt and store it in a dedicated folder. The ATO’s MyDeductions app (via the ATO app) does all of this automatically.
What You Cannot Claim
As important as knowing what you can claim is knowing what is expressly excluded. The most common errors on home office deduction claims:
- Occupancy costs under the fixed rate method — mortgage interest, rent, council rates, and home insurance are not claimable under the fixed rate method. They are only potentially claimable under the actual cost method if you have a genuinely dedicated workspace used exclusively for work — and only then for the proportionate area.
- Personal use of equipment — you can only claim the work-use portion. If your laptop is used 60% for work and 40% for personal use, your deduction (for depreciation and actual costs) is 60%.
- Coffee, tea, and consumables for personal sustenance — not deductible. The fact that you made it at home while working does not make your grocery bill a work expense.
- Furniture that is primarily personal — a lounge sofa you sometimes do emails from is not a work chair. Claiming the full cost of household furniture as a work asset is a common audit trigger.
- Children’s school equipment or a second person’s expenses — only your own work-related expenses are deductible. If your household internet is shared between work and your children’s online learning, only your portion is claimable.
Do You Need a Dedicated Home Office?
No — and this surprises many people. The ATO’s current position under both the fixed rate and actual cost methods does not require you to have a room set aside exclusively for work. You can work at a kitchen bench, a dining table, or a shared study. The fixed rate method applies equally whether you have a dedicated office or not.
Where a dedicated space becomes significant is in relation to:
- Occupancy costs — rent, mortgage interest, and rates are only deductible under the actual cost method if you have a clearly identifiable area exclusively (or near-exclusively) used for work.
- The CGT main residence exemption — see below. Claiming occupancy costs for an exclusive workspace area can partially compromise your CGT exemption when you eventually sell your home.
The CGT Trap: Using Part of Your Home Exclusively for Work
This is the most consequential — and least-discussed — aspect of home office deductions. Your family home is ordinarily exempt from capital gains tax (CGT) when you sell it under the main residence exemption in Division 118 of the Income Tax Assessment Act 1997. But if part of your home is used to produce assessable income — and you claim occupancy expenses (rent or mortgage interest) for that area — you may partially lose the CGT exemption for the period of that use.
The mathematics can be brutal on a large property gain: if your study represented 10% of your home’s floor area, and you used it exclusively for work for five of the ten years you owned the property, 5% of your capital gain on sale could be taxable — at your marginal tax rate.
The CGT exposure arises only when you actually claim occupancy costs (rent or mortgage interest) as a deduction — typically only under the actual cost method, and only if your workspace is exclusively used for work. If you use the fixed rate method, or if you use the actual cost method without claiming occupancy costs, there is no CGT impact. The ATO confirms this. Most employees do not need to claim occupancy costs — and for most people, not doing so protects the full CGT exemption.
ATO Audit Triggers for Home Office Claims
The ATO uses data-matching to compare claimed deductions against average benchmarks for your occupation and income level. Home office claims that are significantly above the average for your industry and income bracket attract attention. The following patterns commonly trigger a review:
- Claiming a very high number of WFH hours (e.g. 2,000+ hours per year) for a role that is primarily office-based, without employer confirmation of a WFH arrangement.
- Claiming occupancy costs (mortgage interest, rent) without evidence of an exclusive home office area.
- Claiming the full cost of household appliances (fridge, kettle, TV) as work equipment.
- Large jumps in WFH claims year on year without a corresponding change in working arrangements.
- Claiming internet and phone costs in full (100%) without any personal use adjustment.
The ATO has stated repeatedly that it will be scrutinising home office claims closely each tax year and has the data to compare individual claims against occupation benchmarks. The safest approach is simple: only claim what you can substantiate with contemporaneous records, and never round up your hours to a convenient figure.
Frequently Asked Questions
What is the working from home tax deduction rate for 2025–26?
The fixed rate method allows a deduction of 70 cents per hour worked from home during the 2025–26 income year. This rate has applied since 1 July 2022, when it replaced the COVID-era 80 cents/hour shortcut rate. The 70 cents covers electricity/gas, internet, phone, and stationery — but not depreciation of assets, which is claimed separately.
Do I need a separate room to claim home office deductions?
No. The ATO’s fixed rate method and actual cost method both apply whether or not you have a dedicated room. You can claim the fixed rate for hours worked at a kitchen bench or dining table. A dedicated, exclusively-used work space only becomes relevant if you want to claim occupancy costs (rent/mortgage interest) under the actual cost method.
Can I claim the cost of my internet and phone if I use the fixed rate?
The fixed rate method already includes internet and phone expenses in the 70 cents/hour rate. You cannot separately also claim your internet or phone bill on top of the fixed rate — that would be a double deduction. If you believe your internet and phone costs are higher than the fixed rate covers, you may be better off using the actual cost method.
What records does the ATO require for the fixed rate method?
You must keep a record of the total hours you worked from home during the income year. A 4-week representative diary is acceptable if your work-from-home pattern is consistent and regular throughout the year. You also need at least one document evidencing each expense type covered by the fixed rate (e.g. an energy bill, a phone bill). Records must be kept for 5 years.
Can I claim mortgage repayments as a home office expense?
No. Mortgage repayments (principal + interest) are not deductible as a general rule. Under the actual cost method, the interest component of a mortgage may be claimable for the proportion of your home used exclusively as a work area — but doing so can partially compromise your CGT main residence exemption when you eventually sell the property. Most employees are better off not claiming occupancy costs and preserving the full CGT exemption.
What happens if the ATO audits my home office claim?
The ATO will ask you to provide the records substantiating your claim — hours worked from home, receipts for expenses claimed, evidence of any assets depreciated. If you cannot produce contemporaneous records, the deduction will be disallowed. You will also owe the tax that should have been paid, plus interest (currently the General Interest Charge rate) and potentially a shortfall penalty of 25–75% of the tax shortfall depending on the level of care taken.
Can I claim working from home deductions if I am an employee?
Yes — employees can claim working from home deductions under both the fixed rate and actual cost methods, provided they genuinely perform work duties from home (not just checking emails occasionally). The work must be employment income-producing work. You do not need your employer to formally confirm the arrangement in writing, though employer documentation of your WFH arrangement strengthens your position.
Can I claim a new desk or office chair as a work expense?
Yes, provided it is genuinely used for work. Items costing $300 or less and used more than 50% for work can be immediately deducted in full. Items costing more than $300 are depreciated over their effective life — a desk, for example, has an effective life of 10 years under ATO depreciation rates, meaning you claim roughly 10% of the purchase price (or 20% using the diminishing value method) per year. The work-use percentage applies — if the desk is 80% for work and 20% personal, only 80% of the depreciation is deductible.
The Deduction You’re Probably Leaving on the Table
The data consistently shows that Australians who work from home under-claim — not because they don’t work from home, but because they haven’t tracked their hours, they assume the deduction isn’t worth the paperwork, or they claim only the obvious things and miss the asset depreciation. A laptop, monitor, external keyboard, ergonomic chair, and standing desk purchased over a few years can represent $800–$1,200 in depreciation deductions annually — deductions that sit in your tax return unclaimed while you focus on the electricity bill.
The ATO’s own guidance is clear. The rules are not complicated once you understand them. The records are not burdensome once you establish a system. What is complicated is navigating a dispute with the ATO if your claim is challenged — and that is where professional tax advice pays for itself.
Tax Dispute or ATO Review? Get Expert Advice.
If the ATO has questioned your deductions or issued an amended assessment, a tax law solicitor can review your position, negotiate with the ATO on your behalf, and — where necessary — represent you before the Administrative Review Tribunal.
Sources
This article provides general information only and is not tax or legal advice. Tax law is subject to change and your personal circumstances will affect which method and deductions apply to you. All figures were current as at August 2026. The ATO’s interpretation of home office expense rules may be updated. For advice specific to your tax situation, consult a registered tax agent or tax law solicitor.