Article Summary: 

Working from home is now a normal part of business life in Australia, but the ATO has clear expectations around what can and cannot be claimed. In this guide, we explain the 2025 to 2026 home office expense rules, compare the fixed rate and actual cost methods, outline what records you need, and highlight common mistakes that can increase audit risk. 

What are the ATO rules for claiming home office expenses in 2026? 

For the 2025 to 2026 financial year, there are two main ways to claim working from home expenses: 

  1. the fixed rate method  
  1. the actual cost method  

The ATO’s current fixed rate method allows taxpayers to claim 70 cents per hour worked from home. This covers electricity and gas, phone, internet, stationery and computer consumables. You can still claim separate deductions for work-related depreciating assets, such as office furniture, laptops and monitors.  

1. Fixed rate method: 70 cents per hour 

Under the fixed rate method, you can claim a flat rate of 70 cents for each hour you work from home. 

This rate covers: 

  • electricity and gas  
  • phone usage  
  • internet  
  • stationery  
  • computer consumables  

You cannot claim these same costs separately if you use the fixed rate method. 

However, you may still be able to separately claim work-related depreciation for assets such as: 

  • office chairs  
  • desks  
  • laptops  
  • monitors  
  • printers  
  • other equipment used for work  

To use the fixed rate method, you need to keep a record of the total number of hours you worked from home and evidence that you incurred the expenses covered by the rate.  

2. Actual cost method 

The actual cost method allows you to claim the work-related portion of eligible home office expenses. 

This may include: 

  • electricity and gas  
  • phone and internet  
  • cleaning costs  
  • depreciation on office furniture and equipment  
  • repairs to work-related items  
  • other running expenses directly connected to working from home  

This method usually requires more detailed record keeping because you need to calculate the work-related percentage for each expense. 

You should keep: 

  • receipts and tax invoices  
  • bills for electricity, gas, internet and phone  
  • usage diaries or logs  
  • calculations showing how you worked out the business or work-related portion  
  • evidence separating personal use from work use

For Business Tax deductions specific for small business read this article.

Which method is better for your situation?  

FIXED RATE METHOD

Best suited to people who want a simpler claim and have reliable records of hours worked from home. 

Pros: 

  • simple to calculate  
  • less complex than the actual cost method  
  • does not require a dedicated home office  
  • still allows separate depreciation claims for work-related assets  

Cons: 

  • may produce a smaller deduction if your actual costs are high  
  • phone, internet, stationery and electricity are already included  
  • requires accurate records of actual hours worked from home  

ACTUAL COST METHOD

Best suited to people with higher work-related usage, larger home office costs, or a dedicated workspace. 

Pros: 

  • may result in a higher deduction  
  • more flexible for business owners  
  • useful where work-related usage is substantial  

Cons: 

  • requires detailed records  
  • can be complex for shared household expenses  
  • requires reasonable and supportable apportionment  

Worked example using actual cost method  

Case Study: Amanda is a freelance graphic designer who works from a dedicated office at home. Her total electricity bill for the year was 2,000 dollars. Based on usage logs, she estimates that 30 percent of her energy use is for work purposes. 

Her eligible electricity claim would be: 

 2,000 dollars x 30 percent = 600 dollars 

She also claimed: 

  • 50 percent of her internet bill (900 dollars x 50 percent = 450 dollars) 
  • Depreciation on her desk and monitor (calculated by her accountant) 
  • Cleaning expenses for the dedicated workspace 

Total claim under the actual cost method: 1,540 dollars 

This was higher than the fixed rate total of 1,120 dollars based on 1,600 hours worked from home. Therefore, she used the actual cost method. 

What if I am self-employed and work from home full time? 

If your home is also your principal place of business, and you have a dedicated work area not used for private purposes, you may be able to claim a portion of occupancy expenses such as: 

  • Mortgage interest 
  • Rent 
  • Council rates 
  • Insurance premiums 

To claim occupancy expenses such as the above when you work from home, you must show that: 

  • the nature of your income earning activities requires you to have a place of business such as: 
  • the area is clearly identifiable as a place of business 
  • the area isn’t readily capable of being used for private or domestic purposes 
  • the area is exclusively or almost exclusively used for carrying on a business 
  • the area is used regularly for visits of clients or customers. 
  • the area of your home that you use for work is exclusively or almost exclusively used for work purposes and isn’t readily capable of being used for any other purpose. 

The occupancy expenses are then claimed by apportioning the amount of floor area for the work area overall to the house and also on a time basis for the amount of time that you use that area of your home for work purposes throughout the year. 

Important: These claims are only available to self-employed individuals. Employees are not allowed to claim occupancy costs even if they have a dedicated home office. 

Occupancy claims may also affect capital gains tax if the home is later sold. Always seek professional advice before claiming these expenses. 

What if I am self-employed and work from home full time? 

As part of your compliance, you need to keep: 

  • A complete log of actual hours worked from home for the year 
  • Receipts or invoices for each expense you are claiming 
  • Bills for internet, phone and electricity (at least one for each) 
  • A four-week usage diary for any shared resource, such as a family internet plan 
  • Asset purchase details for depreciation claims 

All records must be retained for at least five years. 

Could claiming home office expenses affect capital gains tax? 

Yes, if you run a business from home and are eligible to claim occupancy expenses, there may be capital gains tax implications when you sell your home. 

The ATO explains that the main residence exemption may not apply to the portion of the home used for business if you are able to claim occupancy expenses. The non-exempt portion is generally based on the percentage of floor area used for business.  

This is why business owners should get advice before claiming occupancy costs. 

What records do you need to keep? 

For home office claims, keep: 

  • records of actual hours worked from home  
  • receipts and tax invoices  
  • electricity, gas, phone and internet bills  
  • calculations showing work-related use  
  • asset purchase records for depreciation claims  
  • diaries or logs for shared resources  
  • records supporting any occupancy expense claims  

The ATO requires records to be kept for at least five years.  

Common ATO mistakes and audit triggers 

Common mistakes include: 

  • claiming internet or phone separately while using the fixed rate method  
  • estimating hours without proper records  
  • claiming 100 percent business use for shared household services  
  • employees claiming rent or mortgage interest  
  • claiming occupancy expenses without understanding CGT implications  
  • switching methods without keeping records to support each calculation  
  • forgetting to apportion personal and work use  

Choose the right method and keep the right records 

Home office deductions can be valuable, but they need to be claimed correctly. 

For employees, the key decision is usually whether the fixed rate or actual cost method produces the better result. 

For business owners, the decision can be more complex because running expenses, occupancy expenses, depreciation and CGT may all need to be considered together. 

At Cosca, our Strategic Accounting team helps clients choose the right method, maintain compliant records and identify risks before lodgement. 

FAQs

Can I still use a four-week diary for the fixed rate method? 

No. You must keep actual hour records for the entire financial year. 

Can I claim phone and internet separately with the fixed rate method? 

No. These are already included in the 70 cent hourly rate. 

Can I use different methods in the same year? 

Yes, but you must keep separate records for each method used during the relevant period.

Can I claim cleaning or repairs? 

Yes, if using the actual cost method and the expense relates to a dedicated work area. 

Do occupancy claims affect capital gains tax? 

Yes, if you claim a portion of your home as a business premises, the main residence exemption may be reduced upon sale.

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