Working from home means you may be incurring additional expenses that you wouldn’t normally have if you worked at your employer’s premises. These additional expenses can include increased electricity and heating costs, internet usage, phone calls, and the wear and tear on office equipment like computers and desks. Understanding exactly which of these expenses qualify as work-from-home tax deductions is crucial to ensure you claim correctly and maximise your refund without risking an audit.
The ATO recognises two primary methods for calculating your work-from-home deductions: the fixed-rate method and the actual-cost method. Each has its advantages and requirements for record keeping, so it’s important to choose the method that best fits your working situation and expense tracking capabilities.
Moreover, it’s essential to distinguish between running expenses and occupancy expenses. Running expenses refer to the additional costs incurred by working from home, such as electricity, internet, and office supplies. Occupancy expenses, on the other hand, relate to the costs of owning or renting your home, including mortgage interest, rent, land taxes, and house insurance premiums. Typically, employees cannot claim occupancy expenses unless their home is their principal place of business or they run a home-based business.
Additionally, if you operate a home-based business, you may be able to claim a wider range of expenses, including a portion of your rent or mortgage interest, council rates, and home insurance. However, claiming these occupancy expenses can have capital gains tax (CGT) implications when you sell your home. It’s important to keep detailed records and seek professional advice to understand the full impact.
Finally, maintaining accurate and detailed records is critical. The ATO requires evidence such as invoices, receipts, diaries, or timesheets that document your actual hours worked from home and the expenses incurred. Estimates or guesswork are no longer acceptable. Keeping these records for at least five years will ensure you can substantiate your claims if audited.
By understanding these key points and following the ATO’s guidelines, you can confidently claim your work-from-home tax deductions and reduce your taxable income legitimately and effectively.
You may be eligible to claim work-from-home deductions if:
It’s important to note that simply choosing to work from home occasionally does not automatically entitle you to large deductions. Claims must be reasonable, documented, and directly related to income-producing activities.
To successfully claim these deductions, you need to demonstrate that the expenses you are claiming are specifically incurred because of your work-from-home arrangements and are not part of your usual household costs. For example, if your electricity bill has increased due to the additional hours you spend working at home, you can claim the work-related portion of this increase. Similarly, if you purchase office supplies or equipment solely for work purposes, these costs may also be deductible.
Additionally, your eligibility to claim work-from-home deductions depends on the nature of your employment and the level of control your employer has over your work environment. Employees who are required to work from home as part of their job duties are more likely to qualify for these deductions than those who work from home occasionally or by choice.
It's also essential to understand that the Australian Taxation Office (ATO) requires that you keep accurate records to substantiate your claims. This includes maintaining receipts, invoices, and detailed logs of your work hours and expenses. Without proper documentation, your claim may be denied or reduced during a tax audit.
Remember that some expenses, such as mortgage interest or rent, are generally not claimable unless you operate a home-based business and have a dedicated work area that qualifies as a place of business. In contrast, running expenses like electricity, internet, phone usage, and office supplies are typically claimable when they relate directly to your work activities.
By ensuring your claims meet these criteria and are supported by evidence, you can confidently claim work-from-home tax deductions and reduce your taxable income appropriately.
The ATO currently allows two main approaches:
Under the revised fixed rate method (currently 67 cents per hour at the time of writing — always confirm with your tax advisor), you can claim a set rate for each hour worked from home.
This rate covers:
However, you must:
Importantly, you cannot separately claim expenses already included in the fixed rate.
This method allows you to claim the actual work-related portion of your expenses, including:
This approach requires detailed calculations and records, including:
While potentially more beneficial in some circumstances, it requires significantly more documentation.
Here are common work-from-home deductions:
Items under $300 may generally be claimed outright (subject to ATO rules). Items over $300 are usually depreciated over time.
Common mistakes include attempting to claim:
Employees typically cannot claim occupancy costs unless their home is genuinely their principal place of business.
This is an area where many taxpayers overclaim — and where ATO audits frequently focus.
It is important to understand why these claims are often disallowed. Mortgage repayments and rent are considered occupancy expenses, which relate to the cost of owning or renting your home. For most employees working from home, their home is not their principal place of business, so these expenses are not deductible. Only those running a home-based business with a dedicated work area that qualifies as a place of business can claim these costs.
Similarly, everyday household items such as coffee, snacks, or groceries are personal expenses and not related to work activities. Attempting to claim these as work-related expenses can raise red flags during an audit.
Other common errors include claiming 100% of internet or phone bills without properly apportioning the work-related portion, or failing to keep adequate records to substantiate claims. The ATO requires clear evidence of the work-related use percentage for shared services.
To avoid these pitfalls, ensure you only claim expenses that meet the ATO's following criteria: they must be directly related to earning your income, incurred as a result of working from home, and properly substantiated with records.
Understanding these limitations and maintaining accurate documentation will help you confidently claim legitimate work-from-home tax deductions while minimising the risk of audit adjustments or penalties.
The ATO now requires:
Estimates without evidence are no longer sufficient.
At Wotton & Co, we often see taxpayers relying on guesswork. This increases audit risk and can lead to penalties or amended assessments.
To comply with these requirements, it is essential to maintain detailed and accurate records throughout the income year. This includes keeping a log of the hours you work from home, which can be tracked using digital timesheets or a handwritten diary. Such records should clearly indicate the days and times you performed work-related activities at home.
For expenses like electricity, internet, and phone bills, you must retain all relevant invoices and receipts. When expenses are shared between work and private use, you need to calculate the proportion attributable to work. This apportionment should be reasonable and based on actual usage patterns, supported by evidence such as diary entries or usage reports.
The ATO does not accept vague estimates or assumptions; therefore, substantiating your claims with concrete documentation is critical. Failure to do so may result in your deductions being disallowed, additional tax assessments, or penalties.
Using tools such as the ATO's myDeductions app can simplify record keeping by allowing you to capture expenses and work hours in real time. Additionally, consulting with a tax professional can help ensure your records meet ATO standards and that you maximise your eligible deductions while minimising audit risk.
If you operate a business from home (rather than being an employee), additional deductions may apply, including:
However, claiming occupancy expenses can have capital gains tax (CGT) implications when you sell your home. Professional advice is essential before proceeding.
Work from home deductions are legitimate — but they must be substantiated and reasonable. This means you need to keep accurate records and only claim expenses that directly relate to your work activities conducted at home. The Australian Taxation Office (ATO) expects taxpayers to provide evidence such as receipts, invoices, and detailed logs of hours worked from home to support their claims. Without proper documentation, claims can be denied or adjusted during an audit, which may lead to additional tax liabilities or penalties.
It is also important to ensure that the amounts claimed are reasonable and reflect the actual work-related portion of the expenses. For example, if you use your home internet for both personal and work purposes, you should only claim the percentage that corresponds to your work-related use. Similarly, expenses like electricity or heating should be apportioned based on the time and space used for work activities.
Additionally, understanding the difference between running expenses and occupancy expenses is crucial. Running expenses, such as electricity, internet, and office supplies, are generally claimable when working from home, whereas occupancy expenses like rent or mortgage interest are typically only claimable if your home is your principal place of business or you run a home-based business with a dedicated work area.
By following these guidelines and maintaining thorough records, you can confidently claim your work-from-home tax deductions while complying with ATO requirements and minimising the risk of audit issues.
Tax law changes frequently, and ATO data-matching capabilities are increasingly sophisticated. Ensuring your claims are accurate and compliant reduces stress and protects you from future audits.
At Wotton & Co Tax & Business Advisory, we help individuals and business owners maximise legitimate deductions while staying fully compliant with ATO regulations.
We don’t just lodge returns — we provide strategic advice to ensure you claim what you’re entitled to, without unnecessary risk.
If you’re unsure which method to use, what you can claim, or how to keep compliant records, speak with the experienced team at Wotton & Co.
We provide tailored tax advice to individuals, employees, and business owners across Australia.
