Working from home tax deductions for Australian small businesses

Published Wednesday 22 July 2026

Table of contents

• Who can claim working from home tax deductions in Australia?
• What can you claim from working at home?
• How do you calculate your work from home deduction?
• What records do you need for ATO claims?
• Simplify your working from home deductions with Xero
• FAQs on working from home tax deductions

Key takeaways

• Check if you're eligible to claim running or occupancy home office expenses under ATO rules.
• Choose between the ATO fixed rate method at 70 cents per hour or the actual cost method.
• Keep strong records including hours worked at home, bills, and asset details to support your claim.
• Use tools to organise receipts and totals so you can file working from home tax deductions with confidence.

Who can claim working from home tax deductions in Australia

Working from home tax deductions are available to Australian taxpayers who incur expenses while earning income from home. The Australian Taxation Office (ATO) sets out clear rules about who can claim and what qualifies as a legitimate deduction. Understanding these rules helps you determine your eligibility, claim correctly, and avoid issues at tax time.

If you work from home to earn your income, you may be able to claim a deduction for the additional running expenses you incur. This applies whether you're an employee working remotely, a sole trader running your business from home, or a contractor completing work in your home office. The key test is whether the expense is directly related to earning your income and whether you have the records to prove it.

The ATO distinguishes between employees and business owners when it comes tohome office deduction ATOclaims. Employees can generally only claim running expenses like electricity, phone, and internet. Sole traders and home-based businesses may be able to claim a portion of occupancy expenses as well, but this can have capital gains tax implications if you own your home.

Check your eligibility to claim with this ATO guide.

Do you need a dedicated room to claim?

A dedicated home office is optional when you use the fixed rate method. You can claim the 70 cents per hour rate as long as you genuinely work from home to earn your income, even if you work from a kitchen table or shared space.

The actual cost method is different. To claim occupancy expenses like rent or mortgage interest, you need a dedicated area set aside exclusively or almost exclusively for work. This is typically a separate room used as a home office, rather than a shared living space.

In short, you can choose from the following options when you claim working from home expenses:

• Fixed rate method: no dedicated room required
• Actual cost method (running expenses only): no dedicated room required
• Actual cost method (occupancy expenses): dedicated workspace required

Employees and sole traders at a glance

The following breakdown shows what each type of worker can claim when working from home:

• Employees can claim running expenses, such as electricity, phone, internet, stationery, and decline in value of equipment used for work
• Sole traders and home-based businesses with a dedicated work area can also claim a portion of occupancy expenses, such as rent, mortgage interest, council rates, land tax, and insurance, if they accept the capital gains tax implications

Employees who work from home can claim running expenses – the additional costs directly related to working from home. These include electricity for lighting and heating or cooling your work area, phone and internet expenses for work calls and data, computer consumables like printer ink, stationery, and the decline in value of equipment you use for work.

Sole traders and home-based businesses with a dedicated work area may be able to apportion occupancy expenses as well. These include rent, mortgage interest, council rates, land tax, and home and contents insurance. However, claiming occupancy expenses can affect your main residence capital gains tax (CGT) exemption when you sell your home.

Speak with a tax advisor before claiming occupancy costs to understand the potential CGT impact. For more information, see the capital gains tax guide.

The split is straightforward: employees claim running costs only, while sole traders with a dedicated workspace may claim both running and occupancy costs while accepting the potential capital gains tax impact.

What can you claim from working at home

The ATO allows you to claimhome office expensesthat are directly related to earning your income. These expenses fall into two categories: running expenses and occupancy expenses. Different rules apply to each category, and not everyone can claim both types, so be sure to separate them.

Running expenses are the additional costs you incur because you work from home. Occupancy expenses relate to the property itself. Claiming occupancy expenses is more complex and comes with potential capital gains tax consequences, so many taxpayers stick to running expenses only.

Running expenses

Running expenses are the day-to-day costs that increase when you work from home. The ATO accepts the following as claimable running expenses:

• electricity and gas for heating, cooling, and lighting your work area
• phone and internet expenses for work-related calls and data usage
• cleaning costs for a dedicated home office space
• stationery and computer consumables like printer paper, ink cartridges, and pens
• decline in value (depreciation) of office equipment and furniture you use for work
• repairs and maintenance on equipment and furniture used for work purposes

These costs are directly linked to your work activities. For example, if you run your heater or air conditioner while working, that's a running expense. If you purchase a new desk chair for your home office, you can claim the decline in value over time.

Occupancy expenses and CGT risk

Occupancy expenses relate to the property you live in. Sole traders and home-based businesses with adedicated home office– a room or clearly defined area used exclusively or almost exclusively for work – may be able to apportion these costs:

• rent (if you rent your home)
• mortgage interest (not the principal repayments, only the interest component)
• council rates and land tax
• home and contents insurance premiums

To work out the work-related portion of occupancy expenses:

1. Measure the floor area of your dedicated workspace and your total home to get a percentage.
2. Work out how much of the time that space is used for business during the year.
3. Multiply your total occupancy costs by both percentages to get the deductible amount. For example, if your home office is 10 square metres and your home is 100 square metres, and you use the office exclusively for business, you may claim 10% of these costs.

Claiming occupancy expenses can affect your main residence capital gains tax exemption. When you sell your home, the portion you've used for business and claimed as a tax deduction may be subject to CGT. This can result in a significant tax bill on sale.

Many small business owners choose not to claim occupancy expenses to preserve their full main residence exemption. Speak with a registered tax agent or accountant to understand the CGT impact before claiming occupancy costs.

What you can’t claim

The ATO is clear about what youcan’tclaim as working from home tax deductions:

• general household items and expenses not directly related to your work, such as coffee, tea, milk, and toilet paper
• costs your employer pays or reimburses you for – you can't double-dip
• Occupancy expenses if you're an employee and don't have a dedicated business area set aside exclusively for work
• the cost of assets over the instant asset write-off threshold (currently $20,000 for eligible businesses) unless you claim the decline in value over several years according to ATO depreciation rules

If an expense has both a private and work-related component, you can only claim the work-related portion. For example, if you use your mobile phone 60%for work and 40%privately, you can claim 60% of the bill as a deduction.

How do you calculate your work from home deduction?

The ATO offers two main methods to calculate your work from home deduction: the fixed rate method and the actual cost method. Each has different record-keeping requirements and suits different circumstances. Choose the method that gives you the best result, and keep records that support your claim.

The fixed rate is now 70 cents per hour

The ATO increased the fixed rate from 67 cents to 70 cents per hour from the 2024–25 income year onwards. If you lodged a return using 67 cents for an earlier year, that was correct at the time. For your 2024–25 return and future returns, use 70 cents.

The rate applies to every hour you work from home during the income year. You multiply your total hours by 70 cents, then add any separately claimable expenses like equipment depreciation on top.

What the fixed rate covers

The 70 cents per hour fixed rate bundles several common working from home expenses into a single hourly amount. You don’t need to calculate each of these costs separately when you use this method.

The rate covers:

• electricity and gas for heating, cooling, and lighting your work area
• phone expenses for work-related calls
• internet expenses for work-related data usage
• stationery and computer consumables like printer ink, paper, and pens

The rate doesn’t cover:

• decline in value (depreciation) of office equipment and furniture, such as computers, desks, and chairs
• repairs and maintenance to work equipment
• cleaning costs for a dedicated home office

You can claim these excluded expenses separately on top of your fixed rate claim. See the next section for how.

What you can claim on top of the fixed rate

Even when you use the fixed rate method, you can still claim certain expenses separately. These are costs the 70 cent rate doesn’t include, so you add them to your fixed rate total to get your full deduction.

Expenses you can claim separately include:

• Decline in value of equipment: claim the depreciation of computers, monitors, desks, chairs, and other work assets over their effective life
• Repairs and maintenance: claim the work-related cost of repairing equipment you use for work
• Cleaning costs: if you have a dedicated home office, claim the cost of cleaning that space

For example, if you bought a $1,500 laptop used 100% for work with a 3-year effective life, you can claim $500 per year in decline in value. Add that to your fixed rate total to get your complete deduction for the year.

Keep receipts and asset purchase records for any expense you claim separately. The ATO requires evidence for these additional claims even when you use the simplified fixed rate method.

Fixed rate method: 70 cents per hour

TheATO fixed rate method– often called the70 cents per hour ATOmethod – is a simplified way to claim your running expenses. For every hour you work from home, you claim 70 cents. This rate is designed to cover electricity and gas for heating, cooling, and lighting, phone and internet expenses, and stationery and computer consumables.

The 70 cents per hour rate does not cover the decline in value of equipment like computers, desks, and chairs, or the cost of repairs to work equipment. You can claim these separately using the actual cost or decline in value.

Example calculation:

1. Log your hours. Keep a record of the hours you work from home. For instance, if you work from home 3 days a week, 8 hours a day, for 48 weeks a year, that's 1,152 hours (3 × 8 × 48).
2. Multiply by the rate. 1,152 hours × $0.70 = $806.
3. Add depreciation. If you bought a $1,200 laptop for work and it has an effective life of 3 years, you can claim $400 per year decline in value. Add this to your fixed rate claim: $806 + $400 = $1,206 total deduction.

The fixed rate method is quick and easy if you have a simple setup and good records of your hours. Instead of detailed bills for electricity or internet, you only need a log of hours worked from home and evidence of any equipment purchases.

Actual cost method

Theactual cost methodrequires more detailed record-keeping but may result in a larger deduction if your actual expenses are high. Under this method, you calculate the work-related portion of each running expense based on actual usage.

For running expenses:

Work out the percentage of each expense that relates to work. For example, keep a four-week diary of your phone and internet usage to show what portion is work-related. Apply that percentage to your annual bills. For electricity and gas, estimate the work-related portion based on the hours you work from home compared to total hours in the year, and the floor area of your workspace.

For occupancy expenses (sole traders with a dedicated workspace only):

Calculate the floor area of your dedicated home office as a percentage of your total home. Then work out the portion of time the space is used for business. Multiply your annual occupancy costs (rent, mortgage interest, rates, insurance) by these two percentages.

Example:

• Your home office is 12 square metres; your home is 120 square metres = 10% of floor area.
• You use the office for business 50 hours a week, 48 weeks a year = 2,400 hours. There are 8,760 hours in a year, so business use is approximately 27% of the time.
• Your annual mortgage interest is $15,000. Work-related portion: $15,000 × 10% × 27% = $405.
• Repeat for rates, insurance, and other occupancy costs, then add your running expenses calculated on actual usage.

The actual cost method suits you if you have high expenses, a dedicated workspace, and the time to keep detailed records. It's particularly useful for sole traders who want to claim occupancy expenses and understand how this affects capital gains tax (CGT).

Shortcut method note

During the COVID-19 pandemic, the ATO introduced a temporary shortcut method that allowed claims at 80 cents per hour with minimal record-keeping. This method applied only to the 2019–20, 2020–21, and 2021–22 income years. You must now use either the 70 cents per hour ATO fixed rate method or theactual cost methodto claim your working from home tax deductions. If you previously used the shortcut, update your approach and records for current and future tax returns.

What records do you need for ATO claims?

Strong record-keeping is essential to support your working from home tax deductions claim. The ATO requires you to have evidence for every deduction you claim. Without the right records, your claim may be reduced or disallowed entirely if the ATO reviews your return. Keep records for at least five years from the date you lodge your tax return.

Hours logs

If you use the ATO fixed rate method, you must keep a record of the actual number of hours you worked from home during the entire income year. This can be a timesheet, diary, roster, or log that shows the dates and hours worked. The ATO will only accept a record of your actual hours for the full income year under this method. You need a timesheet, diary, roster, or log that shows the dates and hours you worked from home.

For the actual cost method, you need a record of the hours you worked from home to help calculate the work-related portion of your running expenses. You also need a four-week diary showing your work-related phone and internet usage to support your apportionment of those bills.

Bills, receipts and asset records

Keep copies of all bills and receipts related to your home office expenses:

• Energy bills: Electricity and gas bills for the income year, showing your usage and costs.
• Telecom bills: Phone and internet bills, with a usage diary to show the work-related percentage.
• Cleaning invoices: If you pay someone to clean your dedicated home office, keep the invoices.
• Stationery and consumables: Receipts for items like printer paper, ink cartridges, pens, and notebooks.
• Asset purchases: Receipts, invoices, and warranty documents for office equipment and furniture. Record the purchase date, cost, and expected useful life so you can calculate decline in value (depreciation).
• Occupancy evidence: For sole traders claiming occupancy expenses, keep your lease agreement or mortgage statements (showing interest), council rate notices, land tax assessments, and home insurance policy documents.
• Floor area calculation: Measure your dedicated workspace and total home area. Keep a simple floor plan or note showing the calculation (e.g., "Office 12 m² ÷ Total home 120 m² = 10%").

Store these documents securely – digital copies are fine. Many small business owners scan or photograph receipts and file them in cloud storage or accounting software to avoid losing paper records.

GST for registered sole traders

If you're registered for goods and services tax (GST), you can claim input tax credits on the GST portion of your work-related expenses. Apportion the GST in the same way you apportion the expense itself. For example, if you claim 60% of your internet bill as work-related, you claim 60% of the GST on that bill as an input tax credit.

Keep in mind that some occupancy expenses don't include GST. For example, mortgage interest and council rates are input-taxed or GST-free, so there's no GST to claim. Rent may include GST if your landlord is registered, but residential rent is usually GST-free. Check each bill and apply the GST rules correctly. For more on managing your business finances and GST, see the sole trader tax guide.

Simplify your working from home deductions with Xero

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FAQs on working from home tax deductions

Below are answers to common questions about working from home tax deductions in Australia. They focus on eligibility, methods, records, and special circumstances so you can claim correctly and keep your records accurate.

How much can I claim for working from home in 2024–25?

Using the fixed rate method, you can claim 70 cents for every hour you work from home during the 2024–25 income year. Your total deduction depends on your hours worked plus any additional expenses like equipment depreciation that you claim separately on top of the rate.

Can I claim up to $300 without receipts for home office expenses?

The $300 no-receipt rule applies to total work-related expenses of $300 or less, but you still need a record of the hours you worked from home. Keep a timesheet, diary, or log that shows the dates and hours you worked to support your claim.

Can employees claim rent or mortgage interest?

Employees can only claim running expenses such as electricity, phone, internet, and equipment decline in value; they can't claim rent or mortgage interest as occupancy expenses. If you work from home as an employee, use either the fixed rate or actual cost method to claim those running costs.

Do I need receipts for the fixed rate method?

You don't need receipts for the expenses covered by the 70 cents per hour rate (electricity, gas, phone, internet, stationery, and consumables) when you use the 70 cents per hour ATO method. However, you must keep a record of the hours you worked from home – a timesheet, diary, or log showing dates and hours. You also need receipts for any expenses you claim separately, such as the decline in value of office equipment or repairs to work assets. The fixed rate method simplifies record-keeping for running costs, but you still need evidence of your hours and any additional claims.

Can I still use the 80 cents shortcut method?

No, the 80 cents per hour shortcut method introduced during COVID-19 is no longer available. It applied only to the 2019–20, 2020–21, and 2021–22 income years. From 2022–23 onwards, you must use either the ATO fixed rate method at 70 cents per hour or the actual cost method to claim your working from home tax deductions. Update your record-keeping and claiming approach to comply with current ATO rules.

Does claiming occupancy expenses affect CGT?

Yes, claiming occupancy expenses (rent, mortgage interest, rates, insurance) can affect your main residence capital gains tax exemption. When you sell your home, the portion you've used for business and claimed as a deduction may be subject to CGT. This can result in a tax liability on the capital gain attributable to that portion of your home. Many small business owners choose not to claim occupancy expenses to preserve their full main residence exemption. Speak with a registered tax agent or accountant to understand the CGT impact before claiming occupancy costs. For more information, see the capital gains tax guide.

Can I claim if I live with parents or housemates?

Yes, you can claim working from home tax deductions even if you live with parents or housemates, as long as you incur the expenses and they are directly related to earning your income. If you pay rent or contribute to household bills, keep records of your payments and work out the work-related portion. If your parents or housemates pay the bills, you can only claim the portion you reimburse them for – and you'll need evidence of the reimbursement (bank transfer, receipt). The key is that you must actually incur and pay for the expense to claim a deduction.