Working From Home Tax Deductions 2025-26: Fixed Rate vs Actual Cost (Which Wins?)

If you work from home — even just one or two days a week — you're entitled to claim a deduction for the extra running costs that creates. The question almost everyone gets stuck on is which method to use, because the ATO offers two completely different ways to calculate it, and they can produce surprisingly different numbers depending on your situation.

This guide walks through both methods in detail, with real worked examples, so you can work out which one actually gets you a bigger deduction — and what records you need to back it up either way.

The two methods at a glance

For the 2025-26 income year (1 July 2025 to 30 June 2026), you have two options:

The fixed rate method — claim 70 cents for every hour you work from home, which covers a bundle of common running costs, plus separate claims for equipment depreciation
The actual cost method — work out the real work-related portion of every expense individually (electricity, internet, phone, depreciation, and more), based on actual bills and a reasonable work-use percentage

Neither method is automatically "better" — it depends entirely on how many hours you work from home and how high your actual running costs are. We'll work through both with examples below.

Method 1: The fixed rate method (70 cents per hour)

The fixed rate for both the 2024-25 and 2025-26 income years is 70 cents per hour worked from home. This is up from 67 cents in 2022-23 and 2023-24, and 52 cents in the years before that.

What the 70-cent rate covers

The rate is a bundled amount that's meant to cover:

Electricity and gas for heating, cooling, and lighting
Internet expenses
Mobile and home phone expenses
Stationery and computer consumables (paper, ink, etc.)

Because these costs are baked into the 70c rate, you cannot claim any of them separately if you use this method. This is the single most common mistake people make — claiming the fixed rate and then also claiming a chunk of their internet bill on top. The ATO's systems are increasingly good at picking this up through data matching.

What you can claim on top of the fixed rate

The fixed rate method doesn't cover everything. You can separately claim:

Decline in value (depreciation) of equipment used for work — laptops, monitors, desks, chairs, printers, and similar items
Repairs and maintenance of that equipment
An immediate deduction for items costing $300 or less that you use mainly for work (keyboards, mice, power boards, desk lamps, chargers)

This is where a lot of value can be added on top of the base 70c rate, particularly if you've bought equipment during the year.

Record-keeping for the fixed rate method

This is where the ATO has tightened things up considerably. As of March 2023, you can no longer use a 4-week representative diary and extrapolate it across the year. You need:

A record of the total number of hours you worked from home for the entire income year — this can be a timesheet, roster, diary, calendar entries, or a log from time-tracking software, but it needs to reflect actual hours, not estimates
At least one record (bill, invoice, or statement) for each expense category the rate covers — e.g., one electricity bill, one internet bill, one phone bill — to demonstrate you genuinely incurred these costs and have a reasonable basis for the work-related portion

You don't need to keep every single bill for the whole year under this method, but you do need at least one representative example of each, and a genuine, contemporaneous hours record.

Method 2: The actual cost method

The actual cost method lets you claim the real work-related portion of every running expense, calculated individually. It's more work, but for people with significant home office costs and a high proportion of WFH time, it can produce a substantially larger deduction.

What you can claim under actual cost

Electricity and gas — calculated using your actual usage (ideally based on a per-kWh rate and the hours your home office equipment was running), apportioned by the work-related percentage
Internet — apportioned by your work-use percentage of total household usage
Phone (mobile and/or home) — apportioned by work-related calls/data versus personal use
Cleaning costs for a dedicated work area, apportioned by floor area and hours used
Depreciation of office furniture and equipment — same as under the fixed rate method
Repairs and maintenance of that equipment
Computer consumables and stationery — actual cost of work-related portion

Calculating your work-use percentage

This is the crux of the actual cost method, and it usually comes down to two factors multiplied together:

Floor area: what proportion of your home does your dedicated work area occupy? (e.g., a study that's 10% of your home's floor area)
Time: what proportion of the relevant period was that space used for work versus other purposes?

For shared spaces (like a kitchen table used for both work and family life), the calculation needs to reflect that the area isn't exclusively for work — this generally produces a lower percentage than a dedicated home office.

Record-keeping for actual cost

The actual cost method demands considerably more documentation:

All bills and receipts for the expenses you're claiming (not just one example) — electricity, gas, internet, phone
A diary or log of actual hours worked from home, similar to the fixed rate method
Evidence supporting your work-use percentage — floor plans, measurements, or a reasonable calculation showing how you arrived at the apportionment
Purchase receipts for any depreciating assets, plus records supporting the effective life and work-use percentage of each

Worked example: comparing both methods

Let's look at a fairly typical scenario: Priya works from home 3 days a week, 8 hours a day, for 48 weeks of the year — that's 1,152 hours. She has a dedicated home office that takes up about 10% of her apartment's floor area, and she bought a $1,200 laptop during the year that she uses 80% for work.

Fixed rate method for Priya

WFH hours: 1,152 × $0.70 = $806.40
Laptop depreciation: assuming a 2-year effective life (50% decline in value in year one under the diminishing value method), $1,200 × 50% × 80% work use = $480
Total: $1,286.40

Actual cost method for Priya

Using her actual bills for the year:

Expense	Annual cost	Work-related portion	Claimable
Electricity	$2,400	~19% (floor area × time-weighted)	$450
Internet	$1,200	40%	$480
Phone	$600	30%	$180
Stationery/consumables	—	—	$100
Cleaning (dedicated office)	—	—	$200
Laptop depreciation	$1,200	80% (as above)	$480
Total			$1,890

In Priya's case, the actual cost method gives her an extra $603.60 — because she has a dedicated office space, relatively high running costs, and keeps good records.

Now compare a lighter user: Tom

Tom works from home one day a week — 8 hours × 48 weeks = 384 hours — at the kitchen table, with no dedicated office space and no major equipment purchases this year.

Fixed rate: 384 × $0.70 = $268.80
Actual cost: with a shared, non-dedicated space, his work-use percentage would be quite low — likely producing a result in a similar range or lower than the fixed rate, while requiring him to keep every single bill

For Tom, the fixed rate method is almost certainly the better choice — similar or better outcome, far less paperwork.

So which method should you use?

As a general guide:

Choose the fixed rate method if: you work from home a moderate number of days, don't have a dedicated home office with high running costs, and want to minimise record-keeping (you still need an hours log and one bill per category, but nothing close to actual cost requirements)
Choose the actual cost method if: you have a dedicated home office, work from home most of the week, have high electricity/internet costs, and are willing to keep comprehensive records all year

If you're not sure, the only way to know for certain is to calculate both — which is exactly what Priya's example above shows. The gap can be a few hundred dollars either way, so for anyone with a dedicated office space and high WFH hours, it's worth the extra effort.

Use our Income Tax Calculator to see how an extra $500-600 in deductions translates into your actual refund at your marginal tax rate.

The mobile phone gotcha

Here's a trap that catches a lot of people: if you use your mobile phone for work purposes on days when you're not working from home (e.g., checking emails on your commute, taking work calls on a day you're in the office), the fixed rate method does not let you claim that usage separately — it's bundled into the 70c rate, which only applies to WFH hours.

If a meaningful portion of your phone use is work-related on non-WFH days, the actual cost method may let you capture more of your total phone costs across the whole year, not just your WFH days.

What employees generally cannot claim

A few things commonly get claimed incorrectly, particularly by employees (as opposed to sole traders running a business from home):

Rent, mortgage interest, council rates, and home insurance — these "occupancy expenses" are generally not deductible for employees working from home, even under the actual cost method. They're only potentially relevant if you're running a business from home and have a dedicated commercial-use area — and even then, claiming a portion of your home as a place of business can have capital gains tax implications for your main residence exemption when you sell.
Coffee, snacks, and general household supplies — not deductible, even if you'd normally get them at the office.
The full cost of a 100%-personal item just because it sits in your home office — if your laptop is also used for streaming and personal browsing, you can only claim the work-related percentage.

Frequently asked questions

Can I switch between the fixed rate and actual cost method each year?

Yes. You can choose whichever method produces a better (and accurate) result each year, and you're not locked into the same method as previous years. Just make sure you meet the record-keeping requirements for whichever method you choose for that year.

Do I need a dedicated home office to claim WFH deductions?

Not for the fixed rate method — you can work from a kitchen table or shared space and still claim 70 cents per hour, as long as you're genuinely performing your work duties (not just occasionally checking emails). A dedicated office becomes more relevant for the actual cost method, where it affects your work-use percentage calculation.

What counts as "working from home" for the hours calculation?

Hours where you're carrying out substantial income-producing work — not just occasional, minimal tasks like checking a work email from the couch. If your job genuinely requires you to work from home for part of your role, those hours count.

I bought a new monitor and desk this year — how do I claim those?

These are depreciating assets, claimable separately from either method based on their decline in value over their effective life, apportioned by your work-use percentage. If either item cost $300 or less, you can claim the full cost immediately in the year of purchase instead of depreciating it.

What if I changed jobs partway through the year and only worked from home for part of it?

You can still claim for the period you genuinely worked from home — your hours record should reflect actual hours for the period that applied, and you calculate your deduction based on those hours (and corresponding bills, if using actual cost).

Will the rate change for 2026-27?

The ATO reviews the fixed rate periodically based on the cost of running a home office. As at June 2026, the 70 cents per hour rate applies for 2025-26; any change for 2026-27 would typically be announced ahead of the new financial year. Check the ATO's fixed rate method page before lodging your 2026-27 return.

This article is general information only and does not constitute tax advice. The 70 cents per hour fixed rate applies to the 2024-25 and 2025-26 income years as confirmed by the ATO. Rates, thresholds, and record-keeping requirements may change in future years — always check the ATO website or speak with a registered tax agent for advice specific to your circumstances.