If you did any work from home during 2025–26 — whether that's a couple of days a week or full-time — you may be entitled to claim a deduction for the extra running costs it creates. The ATO offers two ways to work this out: the fixed rate method and the actual cost method. Which one gives you the better result depends on how much you work from home, and how good your records are.

Here's what each method covers, what you can't claim either way, and the records you'll need to back up your claim.

Method 1: The fixed rate method

For the 2025–26 income year, the fixed rate is 70 cents for every hour you work from home. You simply multiply your total work-from-home hours for the year by 70c to get your deduction for running costs.

What the 70c rate covers

• Electricity and gas for heating, cooling and lighting
• Home and mobile internet or data expenses
• Mobile and home phone usage
• Stationery and computer consumables

You cannot claim any of these items again separately — they're already built into the 70c rate. If you want to claim your actual phone or internet costs individually, you'll need to use the actual cost method instead for all of your expenses.

What you can still claim on top of the fixed rate

• The decline in value (depreciation) of home office furniture and equipment — desks, chairs, computers, monitors, bookshelves
• Repairs and maintenance of that furniture and equipment

If an item costs $300 or less and is used mainly to produce non-business income, you can claim an immediate deduction for the full cost in the year you buy it, rather than depreciating it over several years.

Method 2: The actual cost method

This method lets you claim the work-related portion of your actual expenses — electricity, gas, phone, internet, cleaning (if you have a dedicated home office), and depreciation of your equipment. It typically requires more detailed records, but can produce a larger deduction if your household running costs are high or you work from home extensively.

For phone and internet, if you receive an itemised bill, you generally need to work out your work-related use over a representative 4-week period, then apply that percentage across the full year.

What you can't claim, under either method

• Occupancy expenses — rent, mortgage interest, council rates, water rates, land tax and home insurance (these are generally only claimable if your home is your principal place of business, which is rare for employees)
• General household items, such as coffee, tea, milk and other supplies — even if your employer would normally provide these at work
• Costs related to your children's education, including equipment like iPads or desks bought for schooling
• Items your employer already provides, such as a laptop or mobile phone
• Time spent on minor tasks outside your normal working hours, such as occasionally checking emails or taking a quick call

Records you need

For the fixed rate method

• A full-year, contemporaneous record of the actual hours you worked from home — a timesheet, roster, diary or spreadsheet logged as you go, not reconstructed later
• At least one record for each type of expense the rate covers (for example, one electricity bill, one phone bill)

For the actual cost method

• Every bill for the full year for each expense you're claiming
• A representative 4-week diary showing your work-related usage percentage for items like phone and internet
• Receipts for any equipment or furniture you're depreciating, plus a record of when you started using it for work

Whichever method you use, keep your records for 5 years from the date you lodge the return they relate to.

A quick comparison

Aisha works from home 3 days a week and logs 1,200 hours for the year. Her household running costs (electricity, gas, phone and internet combined) come to roughly $2,000 for the year, and her estimated work-related share is around 15%.

In Aisha's case, the fixed rate method gives the bigger deduction — but for someone with higher household bills, a larger dedicated office space, or more hours worked from home, the actual cost method can sometimes come out ahead. The only way to know for sure is to run the numbers both ways.

Getting it right this tax time

The ATO has flagged working-from-home claims as an ongoing compliance focus, and a vague estimate of your hours won't hold up if you're asked to substantiate your claim. The good news is that with a simple, contemporaneous record of your hours and at least one bill per expense type, most people can claim confidently under the fixed rate method — and it's worth checking whether the actual cost method would leave you better off.

Talk to North Coast Accounting before you lodge and we'll work out which method suits your situation, and make sure your records stack up.

Disclaimer: This article is general information only and does not constitute tax advice. It does not take into account your personal circumstances. Outcomes depend on your individual situation and current ATO rules, which may change. Please speak with North Coast Accounting before acting on anything in this article.