Working from home deductions: fixed rate vs actual cost method

If you work from home for your job, you may be able to claim a deduction for the extra running costs. The ATO offers two methods, and the one you choose affects both the amount you can claim and the records you must keep.

The fixed rate method

The fixed rate method lets you claim a set amount for every hour you work from home. The ATO sets the rate per hour, so check the current figure for the year you are claiming.

The hourly rate covers:

• Electricity and gas for heating, cooling and lighting
• Mobile and home internet
• Phone usage
• Stationery and computer consumables such as printer ink

You cannot claim these items separately as well. You can, however, claim the decline in value of equipment such as a laptop, desk or office chair on top of the hourly rate.

Records for the fixed rate method

You need a record of the actual hours you worked from home for the whole year. Estimates or a sample period are not accepted. Timesheets, rosters, diary entries or logs from your employer's systems all work. You also need one bill for each expense the rate covers, such as an electricity bill, to show you incurred those costs.

The actual cost method

Under the actual cost method, you work out the real additional costs of working from home. This can produce a larger deduction for people with high running costs or a dedicated home office, but it takes more work.

You need records showing the cost of each expense and how you calculated the work-related portion, such as an itemised phone bill marked up for work calls, or a four-week diary representative of your internet use.

Expenses employees usually cannot claim

Most employees cannot claim occupancy expenses such as rent, mortgage interest, council rates or home insurance, even if they work from home every day. These are generally only available where your home is genuinely a place of business. Claiming them can also have capital gains tax consequences when you sell.

You also cannot claim costs your employer reimburses you for, or general household items such as tea and coffee.

Which method should you use?

The fixed rate method suits most people because it is simpler and only requires an hours log. The actual cost method can be worthwhile if you work from home most days and have high energy or internet costs. You can choose each year, as long as you have the right records for the method you use.

We review working from home claims as part of every individual tax return, and can calculate both methods to see which gives the better result for you.