Work from home deductions remain one of the highest-volume queries for Australian tax practitioners. Since the ATO revised the fixed rate method in 2022-23, the record-keeping requirements have tightened considerably, and many taxpayers who claimed successfully under the old shortcut method are finding they cannot substantiate claims under the current rules.
The two methods
Revised fixed rate method: 70 cents per hour
According to the ATO, from 1 July 2022 the fixed rate is $0.70 per hour worked from home. This rate covers:
- Energy expenses (electricity and gas for heating, cooling, and lighting)
- Internet expenses (the work-related portion)
- Stationery and computer consumables
- Phone usage (the work-related portion)
It does NOT cover:
- Decline in value (depreciation) of assets used at home
- Cleaning of a dedicated home office
- Occupancy costs (rent, mortgage interest, rates, insurance) - these are generally only available if you have a dedicated room used exclusively for work
Record-keeping under the revised fixed rate: You must keep a record of all hours worked from home for the full income year. A diary or timesheet maintained consistently is acceptable. From 1 March 2023, the ATO no longer accepts a 4-week representative diary — you must record every hour across the full year.
You must also keep records of actual running expenses (at least one bill for each type of expense covered by the rate) to demonstrate you incurred those costs.
Actual cost method
Under the actual cost method, you calculate the actual work-related portion of each relevant expense:
- Electricity and gas: based on hours used for work vs. total household use
- Internet: based on work use percentage
- Phone: based on call logs or a representative period
- Depreciation of home office equipment: over the effective life
This method requires meticulous record-keeping but can yield higher deductions for taxpayers who have significant home office setups or very high actual costs.
The dedicated home office question
Both methods treat a dedicated home office (a room used exclusively or almost exclusively for work) differently from a general working area.
With a dedicated home office, you may be able to claim:
- Occupancy expenses: a floor area percentage of rent or mortgage interest, rates, home insurance
- Cleaning costs for that room
Without a dedicated room (using a kitchen table, couch, or shared space), occupancy expense claims are not available regardless of method.
Important: Claiming occupancy expenses as an employee has CGT implications if you own your home. The main residence CGT exemption may be partially reduced. This is a conversation to flag with clients who own property before they claim occupancy costs.
Self-employed vs. employee
Self-employed individuals and employees use the same methods, but the framing differs in the accounts:
Employees claim on their personal income tax return under work-related deductions. The employer does not need to do anything different in payroll.
Sole traders can claim home office expenses as business deductions against their business income. The same methods apply, but the deduction appears in the business accounts rather than the personal return.
Companies and trusts: If the business entity pays rent to the owner for use of their home, this creates income for the owner (assessable) and a deduction for the company. The arrangement needs to be at arm-length market value to withstand ATO scrutiny.
What bookkeepers need to track
For sole trader clients claiming actual costs:
- Total electricity and gas bills for the year
- Internet bills
- Phone bills
- Work use percentages (supported by records)
- Any assets purchased for the home office (computer, desk, chair, monitor)
For company directors claiming through personal returns:
- Same as above, but noted that the company may instead reimburse the director for actual costs
The fixed rate method is simpler to administer for most clients. The main risk is that the ATO now requires a full-year diary, and clients who think they can reconstruct this at tax time cannot.
Practical workflow for practitioners
At the start of each financial year, clients who work from home should be reminded to:
- Start a spreadsheet or app-based log of home office hours
- File their first electricity, internet, and phone bills
- Photograph or scan any home office equipment purchases with receipts
A simple template sent in July each year reduces the scramble at tax time and ensures the claim can be substantiated if reviewed.