Home Office Tax Deductions: What You Can Actually Claim

Working from home costs you money. Power, internet, a chair that is not a dining chair. Some of that is deductible, and the rules changed in ways that caught a lot of people out.

The two things worth knowing before you lodge: the records you are now required to keep are stricter than most people realise, and one category of claim can cost you far more than it saves. Both are below.

Two Methods, One Choice

There are two ways to work out a home office claim, and you pick one per income year. The old 80 cents per hour shortcut from the pandemic years is long gone.

Neither is inherently better. The fixed rate trades a smaller claim for almost no admin; actual cost trades effort for accuracy. What decides it is whether your real costs are meaningfully above the average the fixed rate assumes, and whether you will actually keep the records.

The Fixed Rate Method

The revised fixed rate has been 67 cents per hour since it was introduced for the 2022 to 2023 income year. Rates do get reset, so confirm the current figure on the ATO website before you calculate rather than assuming it has held.

That rate covers a specific list, and you cannot claim any of these separately on top of it:

• Electricity and gas for lighting, heating and cooling
• Home and mobile phone usage
• Internet
• Stationery and computer consumables

People lose deductions here in both directions. Some claim the 67 cents and then also claim their internet bill, which is double dipping and will be adjusted. Others assume the rate covers everything and miss what they are still entitled to.

You can still claim these separately while using the fixed rate:

• Decline in value of equipment. Desk, chair, monitor, laptop, printer. Depreciated over the asset's effective life, or written off immediately if it cost $300 or less and is used mainly for work.
• Repairs and maintenance to those items.
• Cleaning of a dedicated home office, if you have one.

One useful change: the revised fixed rate does not require a dedicated home office. Working at the kitchen table qualifies. The older 52 cents method did require a separate room, and that requirement is often still quoted at people who no longer need to meet it.

The Records Rule That Changed

This is the part that catches people, and it is not a small technicality.

From 1 March 2023, you must keep a record of the total actual hours you worked from home across the whole income year. A representative four week diary is no longer acceptable. An estimate is not acceptable. If you cannot substantiate the hours, the claim does not stand, regardless of how obviously you worked from home.

A timesheet, roster, diary or app record will do, provided it is kept as you go rather than reconstructed in July. You also need one bill for each expense type the rate covers, to show you actually incurred that kind of cost.

The hours record is the single most common reason a home office claim fails. The deduction itself is rarely disputed. The evidence for it frequently is.

If you are starting from nothing this year, start the record today rather than trying to rebuild the last few months. The same principle applies to vehicle logbooks, and for the same reason: contemporaneous records hold up, reconstructed ones do not.

The Actual Cost Method

Actual cost means exactly that. You take each running expense, work out the portion genuinely attributable to work, and claim it.

Apportionment is where the work sits. Electricity might be split by the floor area of the workspace and the hours it is used. Internet might be split by the proportion of data or time used for work. Phone by itemised work calls. Whatever basis you choose has to be reasonable and you have to be able to explain it.

The method usually wins where there is a real dedicated workspace, high energy use, or equipment that runs all day. It rarely justifies itself for someone doing two days a week on a laptop at the kitchen bench, because the extra deduction will not cover the hours spent substantiating it.

Whichever method you use, running expenses are available to employees and business owners alike. The next section is where the two part company.

Rent and Mortgage: The Expensive Trap

Occupancy expenses are the costs of holding the property itself: rent, mortgage interest, council rates, land tax, home insurance.

For an employee, these are not deductible. Not a portion, not with a dedicated room, not because the office was closed. Working from home does not make your home a place of business.

For a sole trader or business owner, they can be deductible, but only where the home genuinely is a place of business. That is a real test with real indicators: a space clearly identifiable as business premises, not readily suitable for domestic use, used exclusively or nearly so for the business, and used regularly for client visits. A laptop in the spare bedroom does not meet it. A consulting room with its own entrance might.

Here is the part that is routinely missed. If you claim occupancy expenses, that portion of your home loses the main residence exemption for the period you claimed. When you sell, capital gains tax applies to it. On a Melbourne property held for years, the tax on sale can dwarf every deduction you ever claimed.

That does not make it the wrong decision. For some businesses the deductions are substantial and the trade is worth making, and there are ways to structure around it. It does mean it is a decision to take deliberately, with advice, and not something to tick because it looked available. Once you have claimed, the consequence is attached to the property.

What You Cannot Claim

Consistently attempted, consistently disallowed:

• Coffee, tea, milk and snacks. These are private, even if the office used to supply them.
• Anything your employer reimbursed. You have not incurred the cost.
• Occupancy costs as an employee. Covered above, and the most expensive misunderstanding on this list.
• Your children's schooling or childcare, however necessary it was for you to get any work done.
• The full cost of items used partly privately. A laptop used half for work is a half claim, not a whole one.

The general test has not changed. You must have spent the money yourself, it must directly relate to earning your income, and you must have a record. All three, every time. Our guide to sole trader deductions covers the wider set, and what happens if a claim is reviewed covers the rest.

Frequently Asked Questions

Do I need a separate room?

Not for the fixed rate method, which is the change most people have missed. You do effectively need a dedicated space to claim cleaning, and you need considerably more than a dedicated space before occupancy costs come into it.

Can I claim a desk and chair outright?

If an item cost $300 or less and is used mainly for work, yes, immediately. Above that it is depreciated over its effective life. A business using the instant asset write-off may be able to claim more, depending on the threshold in force that year.

What if I run a business and also work as an employee from home?

The hours are tracked separately and the claims are made separately. Business hours belong to the business, employment hours to your individual return. Mixing them is a common source of over-claiming.

Can my partner and I both claim?

Yes, if you both work from home and both incur the costs. Each of you claims your own hours. You cannot both claim the same hours or the same expense twice.

How long do I keep the records?

Generally five years from lodgement. That covers the hours record, the bills, and the depreciation schedule for anything still being written down.

Is it worth claiming at all if I only work from home occasionally?

Often yes. The fixed rate applies from the first hour, and a day a week across a year adds up to a claim worth having for very little effort. The effort is the record, not the calculation.

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Home office deductions are not complicated to calculate. They are unforgiving about evidence, and one part of them carries a consequence that shows up years later when the house is sold.

Trew North Accounting sorts this out for Melbourne employees, sole traders and small businesses. See our personal tax and small business accounting services, or get in touch.

This article is general information, not advice for your circumstances. Rates, thresholds and record-keeping requirements change. Check current figures with the ATO or with us before you lodge.