Working from Home Deductions: What's Changed and What Still Applies

Working from home has become part of everyday life for many Australians, but understanding what can legitimately be claimed at tax time is not always straightforward. With the ATO's revised fixed rate method now well established and recent court decisions reinforcing the importance of substantiation, it is worth reviewing which method is right for you before lodging your return.

Working from home: what can you really claim?

Working from home has become part of everyday life for many Australians. Whether you're working remotely several days a week or simply logging on from the kitchen table from time to time, one of the most common questions we hear is: 'What can I actually claim?'

The answer is often less generous than people expect. Working from home doesn't automatically make your mortgage, rent or household bills tax deductible. While the Australian Taxation Office (ATO)allows deductions for genuine work-related expenses, the rules are specific and every claim must be supported by appropriate records.

Since the COVID-19 concessions ended taxpayers have been limited to two methods for claiming working from home expenses: the revised fixed rate method and the actual cost method. Choosing the right method can make a noticeable difference to both the deduction you receive and the amount of record keeping required.

The revised fixed rate method

For many employees, the revised fixed rate method is the simplest option. For the 2024–25 and 2025–26 income years, taxpayers can claim 70 cents for every hour worked from home. The hourly rate covers electricity and gas, internet and data, mobile and home phone usage, stationery and computer consumables. These expenses cannot be claimed separately when using this method.

You may still claim the decline in value (depreciation) of work-related assets such as desks, office chairs, computers and monitors, together with other deductible expenses not covered by the fixed rate such as repairs, maintenance and eligible cleaning costs.

The attraction of this method is its simplicity. Provided you keep an accurate record of the hours worked from home and records showing that you incurred the relevant additional running expenses, calculating your deduction is straightforward. For many taxpayers, the revised fixed rate method simplifies record keeping and may produce a deduction comparable to, or greater than, the actual cost method.

The actual cost method

The actual cost method allows taxpayers to claim the work-related portion of expenses actually incurred, including electricity and gas attributable to the work area, work-related internet and phone costs, stationery and consumables, depreciation of home office furniture and equipment, and cleaning costs for a dedicated home office where appropriate. Every expense must be apportioned between private and work-related use on a fair and reasonable basis.

Good records are critical

Whichever method you choose, the ATO expects taxpayers to keep sufficient records to support their claims. Under the revised fixed rate method, this includes an accurate record of the total hours worked from home for the income year and records showing that relevant additional running expenses were incurred. Under the actual cost method, taxpayers also need evidence of the expenses incurred and documentation supporting the work-related apportionment.

A practical example

Donald is an employed IT consultant who primarily works from his employer's office but occasionally works from home when required. During the income year he works 720 hours from home and incurs the following household expenses:

• Internet and phone: $1,200
• Electricity and gas: $1,300

During the year Donald also purchases an $800 desk, which is used exclusively for work.
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Using the revised fixed rate method,Donald can claim:

• 720 hours × 70 cents = $504
• Plus the decline in value of his desk, calculated under the depreciation rules.

Under the actual cost method, Donald must determine the work-related portion of each household expense using a fair and reasonable basis of apportionment before adding the depreciation claim for his desk. After undertaking these calculations, his total deduction is lower than the amount available under the revised fixed rate method.

Donald illustrates why the revised fixed rate method can be attractive. It generally requires less detailed recordkeeping and, depending on the taxpayer’s circumstances, may produce a deduction comparable to, or greater than, the actual cost method. However, the actual cost method may deliver a better outcome where substantial home office costs are incurred, provided the taxpayer has detailed records and a defensible basis for apportioning private and work-related expenses.

Recent court decisions reinforce the ATO's approach

If there was any doubt about the ATO's approach to working from home deductions, recent court decisions have removed it.

In Commissioner of Taxation v Hall [2026] FCAFC 43, the Full Federal Court confirmed that an employee’s obligation to work from home, and the exclusive use of a room as a home office, do not by themselves make a proportion of rent deductible. The Court found that rent retains its private and domestic character, even where part of the home is used exclusively as a home office.

The decision is an important reminder that the focus is not on where you perform your work, but on the nature of the expense itself. Running expenses may be deductible, but occupancy expenses will generally remain private for employees, although limited exceptions may apply where the home work area has the character of a place of business and other requirements are satisfied.

The courts have also reinforced another key message - the importance of keeping good records. Taxpayers who rely on broad estimates or cannot demonstrate a fair and reasonable basis for apportioning expenses risk having their claims reduced or denied altogether. Good substantiation remains just as important as choosing the correct calculation method.

The bottom line

Working from home deductions are no longer as straightforward as they appeared during the COVID years. For many employees, the revised fixed rate method will provide a simple, compliant and tax-effective outcome. Others may achieve a better result using the actual cost method, provided they have the records to support it. If you're unsure which method is likely to produce the best outcome, speak with your Baumgartners adviser before lodging your tax return.

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