Home Office Tax Deductions for Australian Sole Traders and Employees

If you work from home — whether as a sole trader, contractor, or employee — you may be able to claim a deduction for some of your home office expenses on your Australian tax return. The ATO provides two methods to calculate these deductions, and choosing the right one can make a meaningful difference to your refund.

The Fixed Rate Method

The fixed rate method is the simpler of the two options. From 1 July 2022, the rate is 67 cents per hour for every hour you work from home.

This rate covers:

Electricity and gas (energy expenses for heating, cooling, and lighting your workspace)
Phone usage (the work-related portion of your mobile and home phone)
Internet usage (the work-related portion of your internet costs)
Stationery and office supplies
Computer consumables (printer ink, USB drives, etc.)

Because these costs are already included in the 67 cents per hour rate, you cannot claim them separately if you use this method.

What you can still claim separately under the fixed rate method:

Decline in value (depreciation) of office furniture and equipment — desks, chairs, monitors, computers — used for work
Repairs and maintenance of home office equipment

To use the fixed rate method, you must keep a record of the actual hours you worked from home. A diary, calendar, or timesheet is acceptable. The ATO no longer accepts a four-week representative period for this method — you need a full-year record.

Example: If you worked from home 800 hours during the year, your deduction is 800 × $0.67 = $536, plus any separately claimed depreciation on equipment.

The Actual Cost Method

The actual cost method requires you to calculate the actual work-related proportion of each home office expense. It involves more work but can result in a significantly larger deduction if your home office costs are high.

Under this method, you can claim the work-related proportion of:

Electricity and gas — based on the floor area of your home office as a proportion of your total home, and the hours you work
Internet — based on your actual work-related usage
Phone — based on actual work-related calls and data
Depreciation of furniture and equipment
Cleaning costs for your dedicated office space

You must keep detailed records and receipts for every expense you claim. You also need to determine an appropriate apportionment method for each expense.

What You Can Claim (Both Methods)

Regardless of which method you use, the following can be claimed directly:

Depreciation of equipment — a computer used 80% for work can generate a deduction equal to 80% of its annual decline in value; the ATO's capital allowance provisions set the rate for each asset type
Phone and internet costs — the work proportion, subject to the method you are using
Office supplies and stationery — purchased specifically for work

What You Cannot Claim

Several common expenses are not deductible for home office work:

Rent — you generally cannot claim rent as a home office deduction; however, if you use the actual cost method and have a dedicated room, a proportion of rent may be claimable — but this can trigger a capital gains tax (CGT) issue when you sell the property, as that portion of the home may lose its CGT main residence exemption
Mortgage interest — same CGT issue applies; generally not recommended unless you have taken specific tax advice
Council rates, home insurance, and similar occupancy expenses — only claimable under the actual cost method for a dedicated home office, and with the same CGT risk

Dedicated Home Office vs Shared Space

You do not need a dedicated room to claim home office deductions — any area where you regularly work counts. However:

A dedicated room makes apportionment calculations cleaner and more defensible
A shared space (e.g., kitchen table or lounge) is acceptable, but you can only claim for the hours you are actually working there, not the full day
If you do have a dedicated room, you can claim for the full time the room is available for work, including when the computer is running but you are not actively seated at it

Record Keeping Requirements

The ATO may ask you to substantiate your home office claims:

Hours log — diary, calendar, or timesheet showing all work-from-home hours; must cover the full year for the fixed rate method
Receipts and invoices — for all expenses claimed under the actual cost method
Floor area calculations — if using actual costs, document the floor area of your home office versus your total home

Keep all records for at least five years after you lodge the relevant tax return.