The Actual Cost Method is one of two methods available to taxpayers to claim their work from home expenses. As opposed to the fixed cost method where you claim 67c per hour worked from home, the actual cost method involves claiming the actual cost you incurred for items like phone, internet and electricity while working from home.
Am I eligible to use the actual cost method?
Not everyone can use the actual cost method to claim work from home deductions. You must meet the following criteria to claim home office expenses using the actual cost method on your tax return:
- Your work from home resulted in additional expenses. (For example you used your home Internet to work instead of the company internet in the office).
- You have a record of purchases (receipts) and bills related to your expenses.
- You have a record of the days your worked from home during the year.
- You have a dedicated work space that is not used by other members of your household. (E.g a home office, or spare room in your home).
Standard deduction rules also apply here. You must have paid for the expense yourself, you must apportion bills so you’re claiming only the ‘work related’ portion of them and you can’t have been reimbursed by your employer.
This method is beneficial if you pay board rather than rent or a mortgage since it allows you to claim the actual working from home expenses you incurred. Without paying rent or a mortgage, you cannot claim using the 67c method.
If you’re not eligible to claim using actual cost method, read our article on how you might instead be able to claim 67c per hour worked from home.
What can I claim using the actual cost method?
This varies from person to person, but any additional out of pocket expense you have due to working from home can usually be claimed on your tax return. Common items include:
- Electricity and gas
- Phone expenses (home and mobile)
- Stationery and computer consumables
- Home office cleaning expenses
- Depreciation on assets over $300
- Assets under $300
What can’t I claim?
You can only claim on items that have resulted in additional running expenses that have been paid out of your pocket. Any item that has been paid for or reimbursed by your employer can’t also be claimed on your tax return.
Actual Cost Method Example:
Audrey works from home 3 days per week in her dedicated home office. Her employer provides her with a laptop and mobile phone to use for work. They also reimburse her for any stationery she purchases for her job. However, Audrey pays for her electricity, internet and office furniture herself.
Therefore, Audrey can claim an apportioned amount of her electricity and internet bills as well as her office equipment. However, she is unable to claim the laptop and mobile phone as her work provides them. She also can’t claim her stationery costs as her employer reimburses her for those.
To ensure you maximise your tax refund and don’t run into ATO trouble, it is important to keep accurate records of everything you claim on your tax return. To claim using the actual cost method, you must keep the following records:
Work from home records should show either:
- Number of actual hours you worked from home during the financial year (spreadsheet, timesheet, time-tracking app)
- Usual work pattern over a 4-week period (diary, roster)
- Receipts, bills, other documentation that shows proof of the expenses you claim.
How do I know if actual cost method is right for me?
There are benefits to using both the fixed rate method (67c per hour) and the actual cost method. It will depend on your personal circumstances as to which method is best for you.
Don’t worry though! You won’t need to work this out for yourself if you use Etax. Simply enter all of your work from home deduction information in our tax return. Then, we’ll automatically work out which deduction method gives you the biggest refund and apply that to your return.