Working From Home Tax Deductions: Fixed Rate vs Actual Cost

Working from home at least part of the week is now standard for millions of Australian employees. However, the Australian Taxation Office (ATO) tightened the substantiation rules for working from home (WFH) claims in recent financial years—replacing old shortcut estimates with strict record-keeping requirements.

Choosing between the Fixed Rate Method and the Actual Cost Method, and keeping the right records from 1 July—can make a substantial difference to your legitimate deduction claim. For worked examples, see three real Australian WFH scenarios compared side-by-side.

Who Can Claim Working From Home Expenses?

To claim working from home deductions under either method, you must:

1. Be working from home to fulfil your employment duties, not just checking emails occasionally or doing minimal tasks like taking a phone call after hours.
2. Incur additional running expenses as a result of working from home (for example, paying the electricity or internet bill yourself).
3. Keep the required records that prove both your hours/usage and the expenses incurred — the year-round expense tracking workflow covers what evidence the ATO expects per claim.

Method 1: The Revised Fixed Rate Method

The Fixed Rate Method lets you claim a set statutory rate per hour for every hour you work from home during the financial year (for example, 67 cents per hour—check the current ATO rate for your income year).

What the Fixed Rate Covers (No Separate Claim Allowed)

This is the single biggest trap with the fixed rate method. The hourly rate already includes:

• Internet and data expenses
• Mobile and home phone usage
• Electricity and gas for heating, cooling, and lighting
• Stationery and computer consumables (printer ink, paper)

What You Can Still Claim Separately Alongside the Fixed Rate

Even when using the fixed rate method, you can separately claim:

• Decline in value (depreciation) of office furniture and equipment—such as a desk, ergonomic chair, monitor, or laptop (or an immediate deduction for items costing $300 or less, apportioned for work use).
• Repairs and maintenance to your work equipment.
• Cleaning expenses if you have a dedicated home office room (rare under the fixed rate method).

Record-Keeping Rules for the Fixed Rate Method

You can no longer use a four-week representative diary to estimate your WFH hours under the fixed rate method. You must keep:

1. A contemporaneous record of all hours worked from home across the entire financial year (1 July to 30 June)—such as timesheets, rosters, time-tracking logs, or a diary updated as you work.
2. At least one bill or receipt for each of the running expenses you actually incurred (for example, one quarterly electricity bill and one monthly mobile/internet invoice stored in your Receipt Scanner).

Method 2: The Actual Cost Method

The Actual Cost Method calculates the exact work-related portion of every individual running expense you incur. While it requires more detailed record-keeping, it often produces a higher deduction for people who have a dedicated home study, high mobile phone work usage, or significant electricity/internet costs.

How Each Expense Is Calculated Under Actual Cost

Side-by-Side Example: Fixed Rate vs Actual Cost

Suppose Alex works from home 2 days a week (16 hours/week × 48 working weeks = 768 hours/year) and also uses a $90/month mobile phone plan 60% for work calls and on-call duties, plus a $90/month NBN plan 30% for work:

• Fixed Rate Method (at 67c/hr):
  • 768 hours × $0.67 = $514.56
  • Separate mobile/internet claim allowed: $0 (bundled into the 67c rate!)
  • Total WFH + Phone/Internet Claim: $514.56
• Actual Cost Method:
  • Mobile phone: $90 × 12 × 60% = $648.00
  • Home internet: $90 × 12 × 30% = $324.00
  • Electricity + stationery (apportioned actual cost): ~$180.00
  • Total WFH + Phone/Internet Claim: $1,152.00

In this scenario, because Alex has high work mobile phone usage, the Actual Cost Method yields more than double the deduction, provided Alex kept all monthly bills and a 4-week representative diary!

Feature	Fixed Rate Method	Actual Cost Method
Contemporaneous record of WFH hours	Every hour all year	Every hour or 4-week diary
Separate mobile phone claim (D4/D5)	No	Yes
Separate home internet claim	No	Yes
Separate stationery & ink claim	No	Yes
Equipment & desk depreciation	Yes	Yes
Bills required to be kept	1 bill per expense type	All bills claimed for the year

1. Actual Cost Method (Phone $648 + Internet $324 + Power/Consumables $180)$1,152
2. Fixed Rate Method (768 hrs × $0.67/hr; no separate phone/internet claim)$515

What You Can Never Claim as an Employee Working From Home

Unless your home is legally a "place of business" (and even then, doing so can trigger Capital Gains Tax on your main residence!), employees generally cannot claim:

• Occupancy expenses: rent, mortgage interest, council rates, water rates, or home building insurance
• Coffee, tea, milk, and general household snacks
• Items for children's schooling or partner's personal use

How to Stay Ready for Either Method in PFinance

You don't have to lock in your choice of Fixed Rate vs Actual Cost on 1 July. You can choose whichever method gives you the better result when preparing your return, as long as you kept the records for both.

1. Attach utility, phone, and internet invoices in PFinance using the Receipt Scanner or Bank Statement Import.
2. Tag work equipment and running costs under HOME_OFFICE (D5) or OTHER_WORK (D4) in the Tax Deduction Tracker with your work-use percentage and diary note.
3. Model the tax impact of your total annual deductions right now in our Australian Salary Calculator.