Office worker working-from-home deductions: the two methods

If you are an office, admin, finance or HR worker, the days you work from the kitchen table or a spare room are now the single largest deduction in most returns like yours. Hybrid rosters made that normal, and the running costs add up across a full year. They also make this the area the ATO looks at most closely, because it is easy to claim and easy to overstate. Getting the method and the records right is what keeps the claim standing if anyone asks a question.

The two methods, one per year

There are two ways to work out your home-running deduction, and you choose one for the whole income year. You can switch from year to year, but you cannot run both at once.

The fixed-rate method pays a set amount for each hour you spend working at home. The ATO resets the cents-per-hour figure most years, so read the current rate straight off the ATO working-from-home page rather than relying on a number you saw last year. Multiply the rate by your genuine hours and you have the claim, with no need to split individual bills.

The actual-cost method works the other way: you add up the real work-related portion of each running cost, receipt by receipt. It takes more effort, but for some people it returns a larger deduction. More on when that happens below.

What the fixed rate already includes

The cents-per-hour rate is a bundle. Baked into it are your energy use (electricity and gas), your home and mobile phone use, your internet and data, and your stationery and computer consumables such as printer paper and ink. That single rate is meant to cover all of those.

Because those costs sit inside the rate, you cannot turn around and claim any of them a second time as a separate line. Claiming your phone bill or your internet on top of the fixed rate is double-dipping, and it is the ATO's most common working-from-home audit trigger. If you are on the fixed rate, phone and internet are done: they are already in the hourly figure.

What you can still add on top

A few things sit outside the rate and can be claimed as well. The decline in value of the equipment and furniture you use for work counts: your desk, chair, monitor and laptop lose value over time, and that fall is deductible for the work-related share. Repairs to that equipment are also claimable, and where you keep a separate room used only for work, the cost of cleaning that space sits outside the rate too.

How you claim the equipment itself depends on what each item cost and how much you use it for work. The home-office equipment chapter walks through the $300 line and how decline in value is worked out over the life of the asset, so the mechanics live there rather than here.

The records the fixed rate needs

The fixed-rate method now asks for a record of the real hours you spent working at home over the full year, built up as you went. A timesheet, roster, work diary or calendar all do the job, as long as it is contemporaneous. An estimate you write up the night before you lodge is not accepted, and the old habit of logging a representative four-week sample and scaling it up no longer covers this method: the ATO wants the real hours for the full year.

On top of the hours, keep at least one bill for each expense the rate covers, so you can show the costs were actually being incurred. The hours themselves have to be genuine work: time spent on your job, not a minute here and there checking a roster or glancing at email out of habit. If you would rather log as you go on your phone, the ATO's free myDeductions tool in the ATO app can hold the hours and receipts in one place.

Actual cost, and when it wins

Under actual cost you total the genuine work-related slice of every running cost, backed by receipts and a sensible way of separating private use from work use. Here a four-week representative diary is enough to set the work-use percentage for things like phone and internet, which you then apply across the year. That percentage, times each bill, is your claim.

This method usually comes out ahead for someone at home most of the week with high bills, particularly on power and internet, because it captures the real numbers instead of an averaged rate. The trade-off is the paperwork: you are keeping and apportioning every relevant bill.

One rule to keep it honest: you only claim the additional running cost your work created. If a housemate or family member who is not working sits in the same room, the light and heating were on for them anyway, so there is no extra cost to attribute to your work. The claim is the difference your work made, not the whole bill.

The line an employee cannot cross

Occupancy costs are off limits. Rent, mortgage interest, council rates and house insurance are not deductible for an employee, not even a slice of them, and not even if you work from home five days a week. Working from home does not turn part of your home into a deductible workspace for tax.

The only exception is a genuine place of business, and a convenience or hybrid arrangement almost never meets that test: it applies to a home that is truly the base of a business, not a spare room you use because it suits your roster. There is a catch worth knowing as well: putting mortgage interest into your return can expose part of your home to capital gains tax when you sell it, so a modest deduction today can turn into a far larger bill later. Rent and mortgage interest are the biggest working-from-home myth going, and they stay out of the return.

The bottom line

Work out both methods and keep whichever gives you the higher deduction. Log your actual hours from the first day of the year, not from memory at tax time. Add the decline in value of your desk, chair, monitor and laptop on top of the fixed rate. Never claim phone or internet twice. And leave rent and mortgage interest out of it entirely.

General information only, not tax advice. Check the ATO or a registered tax agent for your situation.