Working from home tax basics

Working from home can increase some of your household costs, such as electricity, internet and phone use. The tax system recognises this: many people who work from home can claim a deduction for the additional running expenses they incur. But the rules are specific, the ATO pays close attention to these claims and record-keeping requirements have tightened in recent years.

This guide gives a plain-English overview of how working from home deductions work. It's general information only, not tax advice. Rules and rates change, so always check the ATO's current guidance or ask a registered tax agent about your situation.

The basic principles

The ATO applies three golden rules to work-related deductions:

1. You must have spent the money yourself and not been reimbursed.
2. The expense must directly relate to earning your income.
3. You must have a record to prove it.

For working from home expenses, this means you can only claim the additional costs you incur because you work from home, not costs you'd have anyway, and only the work-related portion of expenses you use for both work and private purposes.

What working from home expenses can include

Running expenses that may be claimable include:

• Energy for heating, cooling and lighting the area you work in, and for running work equipment.
• Internet and phone costs for the work-related portion of use.
• Stationery and computer consumables, such as printer ink and paper.
• Equipment and furniture used for work, such as a computer, monitor, desk or chair, including their decline in value over time.
• Repairs to work equipment and furniture.

Generally, employees can't claim occupancy expenses, such as rent, mortgage interest, council rates or home insurance, because their home isn't a place of business. Different rules apply if you run a business from a dedicated area of your home. You can't claim personal costs, such as tea, coffee or snacks, or costs related to children's education.

The fixed rate method

Under the fixed rate method, you claim a set rate for each hour you work from home. The rate is set by the ATO and covers certain running expenses, including energy, internet, phone, stationery and computer consumables. You can't claim those expenses separately as well. However, you can usually claim the decline in value of equipment and furniture, and repairs, separately.

To use the fixed rate method, the ATO requires you to keep:

• a record of the actual hours you worked from home for the whole income year, such as a timesheet, roster, diary or log; and
• records showing that you incurred the expenses the rate covers, such as a bill for each type of expense.

An estimate or a sample period of hours isn't enough. Check the ATO's website for the current rate and record-keeping requirements before you lodge.

The actual cost method

Under the actual cost method, you work out the actual work-related portion of each expense. For example, you might calculate the work-related share of your internet use, or the additional electricity used by your work area and equipment. This method can produce a larger or smaller claim than the fixed rate method, but it requires more detailed records, such as bills, receipts and a diary or other evidence of your work-related use over a representative period, plus a record of the hours you work from home.

Equipment and furniture

If you buy equipment or furniture you use for work, you may be able to claim a deduction:

• For lower-cost items used mainly for work, you may be able to claim an immediate deduction for the work-related portion.
• For more expensive items, you generally claim the decline in value over the item's effective life.
• If you use an item for both work and private purposes, you can only claim the work-related portion.

Keep receipts and records of how you use each item. The ATO's depreciation and capital allowances tool can help calculate decline in value.

Records to keep

Good records make claims easier and protect you if the ATO asks questions. Keep:

• A log of the hours you work from home, kept throughout the year.
• Bills for energy, internet and phone.
• Receipts for equipment, furniture, stationery and repairs.
• For the actual cost method, records showing how you calculated the work-related portion.

The ATO's myDeductions tool in its app can help you record expenses and hours. Keep records for the period the ATO requires, generally five years from lodging.

Common mistakes

• Claiming without a record of hours. The fixed rate method requires an actual record for the whole year.
• Double-dipping. Claiming expenses separately that are already covered by the fixed rate.
• Claiming reimbursed costs. If your employer paid or reimbursed you, you can't claim.
• Claiming private use. Only the work-related portion is deductible.
• Claiming occupancy expenses as an employee. Rent and mortgage interest are generally not claimable.
• Guessing. Estimates without evidence aren't enough.

Employer allowances and reimbursements

Some employers pay a working from home allowance or reimburse specific costs. Allowances are usually included in your assessable income, and you may be able to claim deductions for expenses you actually incur. Reimbursed expenses generally can't be claimed. Check your payslips and income statement, and ask your employer how any payment is treated.

Running a business from home

If you're self-employed or run a business from home, different rules may apply, particularly if you have an area set aside exclusively as a place of business. Claiming occupancy expenses can also have capital gains tax implications when you sell your home. Get advice from a registered tax agent.

Getting help

The ATO's website has detailed guidance and examples on working from home expenses. If your situation is complex, consider using a registered tax agent; you can check that an agent is registered on the Tax Practitioners Board's register. Be wary of anyone promising unusually large refunds.

Keeping records simple

Choose one place for records, such as a single folder or spreadsheet, and add to it as you go. A few minutes each week is far easier than trying to rebuild a year of hours and receipts at tax time.

When to get personal advice

Everyone's situation is different. If you run a business from home, share a home office with a partner, work for several employers or have large equipment purchases, consider talking to a registered tax agent, or check the ATO's own guidance, before you lodge.

Key points

You may be able to claim the additional running expenses of working from home using the ATO's fixed rate or actual cost method. Keep a record of your hours for the whole year, keep bills and receipts, claim only work-related costs you weren't reimbursed for, and check the ATO's current rules or ask a registered tax agent.