Work from home tax deductions: What you can claim in FY27

Published Thursday 1 October 2026

Table of contents

• What are work from home tax deductions?
• What can you claim when you work from home?
• The 2 ATO methods for claiming home office expenses
• Home-based business expenses for sole traders
• How to claim with the fixed rate method, a worked example
• Records you need to keep
• Save time on your tax records with Xero
• FAQs on work from home tax deductions

Key takeaways

• You can claim the extra running costs you take on because you work from home, such as a share of your energy, phone, and internet, but only the work-related portion.
• The ATO gives you two ways to claim: the fixed rate method at 70 cents per work hour, or the actual cost method where you work out the real work-related share of each bill.
• Good records make or break your claim. For the fixed rate you need a log of every hour you work from home across the year, plus one bill for each type of running expense.
• If you're a sole trader running a home-based business, you may also claim occupancy costs like rent or mortgage interest, but that can affect the capital gains tax exemption on your main residence.

What are work from home tax deductions?

Work from home tax deductions are the work-related share of the extra costs you take on because you run your business from home. If you're a freelancer, consultant, tradie, or landlord working from a home base, these deductions lower your taxable income.

The ATO (Australian Taxation Office) applies one core principle: there has to be a direct connection between the expense and earning your income. You can only claim the extra, work-related portion of a cost, not the part that's private. So if you'd pay for the electricity anyway, you claim the added amount that comes from working, not the whole bill.

What can you claim when you work from home?

You can claim the running expenses that go up because you work from home, as long as you keep records and only count the work-related share. These are the day-to-day costs of using your home as a workspace.

Here's what typically counts as a claimable running expense:

• Energy: the electricity and gas you use for heating, cooling, and lighting your work area
• Phone and internet: the work-related portion of your home and mobile phone and your internet
• Stationery and computer consumables: printer paper, ink, and other items you use up doing the work
• Office equipment and furniture: the decline in value of assets like a computer, desk, or chair, plus the cost of repairs to them

What you can't claim

Some costs feel work-related but don't qualify, so it helps to know where the line sits. Ruling these out keeps your claim clean if the ATO ever asks questions.

You generally can't claim the following:

• The private-use portion of any cost: If you use your internet half the time for personal browsing, that half stays out of the claim.
• General household expenses: Costs like coffee, tea, or snacks for yourself aren't deductible.
• Anything a client reimburses: If someone else has already covered the cost, you can't claim it again.
• Occupancy costs, in most cases: Rent, mortgage interest, and council rates are off limits unless part of your home is a genuine place of business, which we'll come back to.

The 2 ATO methods for claiming home office expenses

The ATO gives you two ways to work out your home office expenses: the fixed rate method and the actual cost method. You pick the one that gives you the bigger, compliant claim, and you can compare them each year.

Fixed rate method

The fixed rate method lets you claim a set amount for every hour you work from home, which keeps the maths simple. The rate is 70 cents per work hour for the 2025 – 26 income year, the most recently published rate at the time of writing.

That single rate bundles together your costs for:

• eating your home
• cooling your home
• lighting your home
• mobile phone bills
• Internet bills
• stationery
• computer consumables

You don't claim those items separately on top. Depreciating assets like your computer, desk, and chair, along with repairs to them, sit outside the rate and you claim those separately. To use this method, keep a record of the total hours you work from home for the whole income year, plus one bill for each type of running expense. The ATO sets out the detail on its fixed rate method guidance.

Actual cost method

The actual cost method lets you claim the real work-related portion of each running expense instead of a flat rate. It can produce a larger claim if your home running costs are high, though it asks more of your record keeping.

With this method you work out the actual amount of each cost, then apply a reasonable way to split private use from work use. That might mean tracking the hours a device is used for work, or the floor area of your work space. You keep records for every expense you claim and evidence of how you apportioned it. The ATO covers the full rules on its working from home expenses page.

Which method is right for you

The right method comes down to your running costs and how much record keeping you're happy to take on. Neither is intrinsically better, so it's worth running the numbers both ways.

Here's a quick way to decide:

• Pick the fixed rate method for simplicity. This is the lighter-touch option if your home running costs are modest and you'd rather log hours than chase every bill.
• Pick the actual cost method for a bigger claim. This tends to win when your work-related running costs are high and you're set up to keep detailed records.
• Compare both before you lodge. The ATO home office expenses calculator lets you test each method side by side.

Home-based business expenses for sole traders

If you're a sole trader running your business from home, your costs fall into two buckets: running expenses and occupancy expenses. Sorting them correctly decides what you can safely claim.

Running expenses are the day-to-day costs of working from home, like energy, phone, internet, and consumables, and you can claim the work-related share of these. It helps to track your business expenses as they happen so the work-related share is easy to find at tax time. Occupancy expenses are the costs of owning or renting the property itself, such as rent, mortgage interest, council rates, and home insurance. The rules for occupancy expenses are stricter, and getting them wrong can cost you later.

Occupancy expenses and the capital gains tax catch

You can only claim occupancy expenses if part of your home counts as a genuine place of business, not just a convenient spot to work. That usually means a dedicated area your clients or customers visit, or a space set aside and used mainly for the business.

Claiming occupancy expenses comes with a catch worth understanding. Once part of your home is a place of business, you may lose part of the main-residence capital gains tax exemption for that portion, which can mean a tax bill when you sell. Weigh the yearly saving against that future cost before you claim. The ATO sets out the rules on its deductions for home-based business expenses page.

How to claim with the fixed rate method, a worked example

Seeing the numbers in action makes the fixed rate method easier to trust. Here's how a freelance graphic designer working from a spare room would calculate a claim for the year, step by step.

1. Log your hours

Keep a record of every hour you work from home across the full income year, whether that's a timesheet, a diary, or your calendar. This log is the backbone of a fixed rate claim.

2. Add up your total hours

Total the hours for the whole year. Say you work from home 20 hours a week for 48 weeks, which comes to 960 hours.

3. Apply the fixed rate

Multiply your hours by 70 cents. In this case, 960 hours by $0.70 equals a $672 deduction for your running expenses.

4. Claim your equipment separately

Your new $1,200 desk and chair aren't covered by the rate, so you claim their decline in value on top, following the ATO rules for depreciating assets.

5. Keep your proof

Hold on to your hours log and one bill for each running expense type in case the ATO asks. In this example the designer claims $672 through the fixed rate, plus a separate deduction for the desk and chair, and could compare that against the actual cost method before lodging.

Records you need to keep

Your records are what turn a claim into a deduction the ATO will accept. The good news is you don't need a receipt for every dollar, just the right proof for the method you choose.

Keep these records through the year so tax time is straightforward:

• A log of your hours: Record the total hours you work from home across the whole income year for the fixed rate method.
• One bill per running expense: Hold at least one bill for each expense type, such as an electricity or internet bill, to show you incurred the cost.
• Receipts for equipment: Keep receipts for assets like a computer, desk, or chair so you can claim their decline in value.
• Your apportionment for actual costs: If you use the actual cost method, note how you split private use from work use for each expense.

Save time on your tax records with Xero

The hardest part of claiming work from home deductions is keeping tidy records all year, not the maths at tax time. Cloud accounting software brings your income, bills, and receipts together in one place, so your running expenses are ready when you need them.

You can snap and store receipts, see your work-related costs at a glance, and back up your claim without digging through a shoebox of paper. That makes it far easier to pick the right method with confidence.

Ready to start the year with your records under control? Get one month free

FAQs on work from home tax deductions

Here are quick answers to the questions self-employed people ask most about claiming work from home costs.

Can you claim working from home without receipts?

You still need records, but they don't have to be a receipt for every dollar. For the fixed rate method you keep a log of your hours worked from home and one bill for each type of running expense, rather than an itemised receipt for each cost.

What is the ATO rate for working from home?

The fixed rate is 70 cents per work hour for the 2025-26 income year, which is the most recently published rate. It bundles your energy, phone, internet, stationery, and computer consumables into one figure.

Can you claim rent or mortgage interest?

Usually not, unless part of your home is a genuine place of business. Even then, claiming these occupancy expenses can reduce the capital gains tax exemption on your main residence when you sell.

Do you need a separate room to claim?

No. You can claim running expenses without a dedicated room, as long as you only count the work-related portion. A separate room mainly matters for occupancy expenses, where a distinct place of business is required.