Claiming Work From Home Tax Deductions

If you’re an employee who works from home, you’re probably using things like your phone, internet, and electricity. These are considered work from home tax deductions that you could potentially claim on your tax return. However, it’s important to note that how you work from home impacts on whether you can claim home office expenses. For example, occasionally checking emails, taking the odd work call, or doing minimal work tasks are not sufficient, even if they are done from home.

To claim a home office tax deduction, you must:

• Work from home regularly to fulfil your employment duties,
• Have additional expenses as a result of working from home, and
• Have adequate records that outline the hours worked and/or expenses you incurred.

What are home office expenses?

Home office expenses are the extra costs at home that you pay for, because of working from home rather than at your employer’s workplace. These costs can include electricity, internet, mobile phone, office equipment, computers, and more. On your tax return these can also be called your working from home tax deductions.

Example:
Alex works from a dedicated home office two days per week. Alex incurs additional costs during these two days that she wouldn’t usually have if she worked in the office. These include internet, mobile phone, electricity, and stationery. Since she works from a dedicated home office, Alex can choose to claim either the revised fixed rate method, or the actual cost method.

How can you claim home office expenses?

There are two methods to claim home office expenses.

A) The fixed rate method combines most work from home tax deductions and allows you to claim 67 cents per hour worked from home.

B) The actual cost method lets you claim each deduction separately, but does not allow you to claim a standard rate per hour worked from home.

You can’t combine A and B – it is one or the other. (Etax can help you find which method is more valuable for you.) Let’s cover some details:

A) Revised Fixed Rate method

On 1 March 2023, the ATO introduced a new fixed rate method for work from home deductions. The fixed rate method is calculated at 67 cents per hour you work from home and includes the following deductions:

• Electricity and gas
• Home and mobile phone expenses
• Internet
• Computer consumables and stationery

There are still some expenses you will need to claim separately on your tax return. These include:

• Full purchase price of office equipment that cost less than $300 (e.g. an office chair, keyboard, mouse)
• Depreciation on office equipment that cost more than $300 (e.g. standing desk, bookshelf). You can also claim the repairs and maintenance of these items.

When using this method, you must keep an accurate record of actual hours worked from home, through timesheets, rosters, employer logs, time-tracking apps, or a regularly updated calendar, logbook, spreadsheet, or similar.

You can also claim a separate deduction for the work-related portion of items such as office chairs, desks and bookshelves. But remember to always keep your receipts, as these are likely items that decline in value over time, and you might be able to also claim the repairs and maintenance of these items.

You cannot claim work from home expenses using the revised fixed rate method if you are paying board, rather than rent or a mortgage. Instead, use the actual cost method for items you were personally out of pocket for.

Remember: you need to keep your records for 5 years (in most cases) from the date you lodge your tax return.

B) Actual Cost method

The actual cost method is exactly what it says – you claim the actual cost of running your home office (see example below for calculations), not a nominal 67 cents per hour that is claimed under the fixed rate method. Expenses that you can claim individually through the actual cost method include:

• Electricity and gas
• Phone expenses (home and mobile)
• Internet
• Stationery and computer consumables
• Home office cleaning expenses
• Full purchase price of office equipment that cost less than $300 (e.g. an office chair)
• Depreciation on office equipment that cost more than $300 (e.g. Standing desk)

To claim the actual cost method, you need to keep a record of the expenses you are claiming, as well as the days and hours you work from home.

For more information on the actual cost method, read the actual cost method blog post.

How to calculate work from home tax deductions

If you use Etax, you can skip this part as we’ll work it out for you, but if you’re interested in how these two methods are calculated, we have provided an example comparing the two methods.

Example 1:

Diego is a recruitment consultant who works 24 hours per week from home and he has a diary of each hour he worked from home this year. He has a company laptop and company mobile phone, but uses his home internet that he shares with his wife. He calculates that his internet use is 55% work-related and his share of the $80 per month bill is $40. The work-related portion of his electricity works out to be 15% of the year’s bills.

Revised Fixed Rate method:

• Diego can claim 24 hours per week x $0.67 x 48 weeks (52 weeks minus 4 weeks annual leave) = $771.84
  • (Diego can’t claim his internet, and power expenses using the revised fixed rate method, as it’s already included in the 67c per hour rate).
• Total claim using this method = $771.84

Actual Cost method:

• Diego can claim an apportioned amount of his electricity and internet bills.
• For internet, Diego claims 55% of $40/month 11 months (one year minus his 1 month annual leave) = $242.00
• For electricity, he claims 15% of the total of 11 months’ worth of electricity bills ($1,356) = $203.40
• Total claim using actual cost method = $445.40

Therefore in this example, Diego’s working from home tax deduction claim would be $326.44 higher using the fixed rate method over the actual cost method.

What home office expenses can’t you claim?

For any work from home deduction to be claimed on your tax return, you must meet the following criteria. If you don’t, then you can’t claim it on your return:

• You must have paid for the item yourself: Items supplied by your employer cannot be included on your return.
• You must be out of pocket for the expense: If you purchased items on a company credit card or they reimbursed you for the purchase, you can’t also claim it on your tax return.
• Have evidence to support your claim: If you don’t have a receipt for a purchase or a record of hours you worked from home, you can’t make a claim.

How do I know which method is best for claiming work from home expenses?

It can be hard to know exactly which method will give you the better refund at tax time. For some people the fixed rate method will be best, while for others the actual cost method will give you a bigger working from home tax deduction. It really comes down to your personal circumstances.  

But don’t worry! If you use Etax, you don’t need to work it out yourself. Simply enter your home office expense information and our tax return will automatically calculate which method is best for you. This ensures you always get the biggest work from home tax deduction claim on your tax return!