The ATO's two methods compared, what they cover, the records you need, and how to choose.
Working from home some of the time is now standard for a lot of Australian employees, and the ATO has two ways for you to claim the extra running costs that come with it: a simple fixed rate method and a more detailed actual cost method. Both are legitimate, both can produce a sensible deduction, and they each have their own record-keeping rules. This guide is general information rather than tax advice.
Under the ATO's fixed rate method, you claim 70 cents for every hour you actually work from home. That single rate is designed to bundle together a set list of running costs so you do not have to apportion each bill separately. Specifically, it covers energy (electricity and gas), phone usage (both mobile and home phone), internet, stationery and computer consumables. You cannot also claim any of those items individually if you use the fixed rate.
The trade-off is simplicity in exchange for a flat rate. If your home office set-up is modest and you do not run a particularly high electricity or internet bill, the fixed rate is usually the easiest path and often close to what you would get under the actual cost method.
The actual cost method calculates the work-related portion of each individual expense, based on records you keep. That can mean separating out the share of your electricity bill that was used for work, the work-related portion of your internet, and so on. It is more work, but it can produce a larger deduction in cases where you have heavy home-office use, a dedicated room, or expenses the fixed rate does not include. It is also the only way to capture expenses that are not in the fixed-rate bundle.
Record-keeping is where most claims live or die. The ATO's Practical Compliance Guideline PCG 2023/1 sets out the expectation for the fixed rate method: you need a record of the actual hours you worked from home across the full income year, not a four-week estimate later extrapolated. A timesheet, work diary, calendar entries, rosters or similar are all acceptable, provided they cover each day. You also need at least one bill for each of the running expenses that the fixed rate covers, to demonstrate that you actually incurred those costs.
The actual cost method is more demanding. You generally need detailed records of every expense you are apportioning, plus a credible method for calculating the work-related percentage. For internet that might mean the proportion of work usage relative to total household use. For electricity it might involve floor area or actual measured usage of equipment.
| Feature | Fixed rate method | Actual cost method |
|---|---|---|
| How you claim | 70 cents per hour worked from home | Work-related portion of each actual expense |
| What it covers | Energy, phone, internet, stationery, computer consumables | Each cost you can substantiate |
| Hours records | Actual hours for the whole year | Generally needed for apportionment too |
| Bills required | At least one per included expense | Detailed bills for every expense claimed |
| Depreciation | Claimed separately on equipment | Claimed separately on equipment |
The fixed rate bundles the running costs listed above, but it does not include the depreciation of equipment you use for work. A laptop, monitor, desk, office chair or printer used for work is claimed separately, on top of the fixed rate, based on the work-related portion and the effective life of the item. The ATO has standard effective lives published for common items, and lower-cost assets may be eligible for immediate write-off under the relevant rules. Either method lets you depreciate equipment; the difference is only in how the running costs are claimed.
Most employees working from home cannot claim occupancy expenses such as rent, mortgage interest, council rates or home insurance. These are typically only deductible when your home is genuinely a place of business, which is a narrower test than working from home some of the time. Coffee, snacks and general household items are not deductible. Items used for both work and private purposes need to be apportioned and only the work share is claimable.
For most employees with a hybrid arrangement, the fixed rate is easier and produces a reasonable result. The actual cost method is worth the extra effort if you have unusual circumstances: a dedicated home office, a working-from-home arrangement that is most or all of your role, or particularly high running costs. You can choose a different method in different years, so it is worth doing a quick comparison once your hours and bills for the year are clear.
Imagine you worked from home an average of two days a week for the income year, which is roughly 760 hours after annual leave and public holidays. Under the fixed rate method that is 760 multiplied by 70 cents, or about $532, plus separate depreciation on your laptop, monitor and chair. Under the actual cost method you would need to calculate the work-related portion of each electricity bill, internet bill, phone bill and so on, and add depreciation. If you live alone in a small apartment with a single high-powered work setup, the actual method can comfortably beat the fixed rate. If you live in a shared household with average usage, the fixed rate is often within a few hundred dollars of the actual outcome, with a tiny fraction of the paperwork.
In recent income years the ATO has flagged working-from-home claims as a focus area, and most of its concern has been about substantiation rather than the methods themselves. The two most common issues are estimated rather than actual hour logs, and claiming items separately that the fixed rate already includes. Keeping a real, contemporaneous record of hours and being clear about which method you have chosen for the year addresses both.
Disclaimer: This article is general information, not tax advice. Rules and rates can change. Confirm the current position with the ATO's working-from-home expenses pages and seek tailored advice if your situation is unusual.