The Tax Return Mistake the ATO Will Scrutinise Most in 2026 — What Aussie Workers Need to Know

Quick answer: The ATO's biggest focus this tax season is inflated or incorrectly calculated work-from-home deductions — particularly taxpayers who misunderstand what the fixed-rate method actually covers. If your claim doesn't reflect your genuine, documented expenses, expect it to be queried.

Every year, millions of Australians lodge their tax return and quietly hope for the best. Most will get a refund, thank their lucky stars, and move on. But in 2026, the Australian Taxation Office has made it crystal clear that one category of claim is under sharper scrutiny than anything else: work-from-home (WFH) deductions — and more specifically, the way people are applying the fixed-rate method to expenses that method simply doesn't cover.

The ATO's message has been blunt: "That's not how the rules operate." And if you've been doubling up on claims — using the fixed-rate shortcut while also separately deducting things like internet and phone costs — you may be in for an unwelcome letter.

Here's everything you need to know: what the rules actually say, why so many workers are getting this wrong, what the ATO is likely to flag, and how to make sure your return is defensible.

Why Work-From-Home Claims Are the ATO's Number One Target

Working from home became mainstream almost overnight during the COVID pandemic, and millions of Australians who had never claimed home-office expenses before suddenly found themselves claiming them. In response, the ATO introduced a simplified "shortcut method" — $0.80 per hour — which allowed people to claim a single rate for all running expenses.

That shortcut method was retired after 30 June 2022. Since then, two methods remain:

The revised fixed-rate method — currently 67 cents per hour
The actual cost method — based on real, documented expenses with a portion attributed to work use

The problem? Many Australians are treating the revised fixed-rate method the same way they treated the old shortcut — claiming the 67 cents per hour plus separately deducting phone bills, internet plans, and office equipment depreciation on top of it.

That double-dipping is precisely what has the ATO on high alert.

What the 67-Cents-Per-Hour Method Actually Includes

This is where a lot of workers are tripping up. The revised fixed-rate method of 67 cents per hour is designed to cover a specific bundle of expenses. Once you use this method, you cannot separately claim any of the following:

Expense included in the 67c rate	Can you claim separately?
Internet (home broadband)	❌ No
Mobile and home phone usage	❌ No
Electricity and gas (heating, cooling, lighting)	❌ No
Stationery and office supplies	❌ No
Computer consumables (ink, printer paper)	❌ No

What is not included in the 67c rate — and therefore can still be claimed separately:

Expense NOT included in the 67c rate	Can you claim separately?
Office furniture (desk, chair)	✅ Yes, depreciation
Computer equipment (laptop, monitor, headset)	✅ Yes, depreciation
Occupancy costs (mortgage interest, rent)	✅ Only in rare circumstances — see below
Repairs to home-office equipment	✅ Yes

Important: Occupancy costs like rent or mortgage interest are only deductible if your home is a genuine "place of business" — for example, a sole trader who sees clients at home and has a dedicated room set aside exclusively for that purpose. The vast majority of PAYG employees working from a kitchen bench or spare bedroom cannot claim these.

The Most Common Double-Dipping Mistakes

Tax agents and accountants have flagged three specific errors that are appearing repeatedly in lodgements:

1. Claiming the fixed rate AND a separate phone/internet deduction

This is the most frequent mistake. A worker logs 40 hours per week working from home, correctly calculates their 67-cent claim, but then also includes a separate line item for 50% of their mobile phone bill and 40% of their home internet plan.

Under the revised fixed-rate method, those costs are already baked into the 67 cents. Claiming them separately is double-dipping — it's not allowed, and it's one of the ATO's most straightforward flags to identify using data matching.

2. Using a "standard" hours figure without a diary or records

The ATO has tightened its record-keeping requirements significantly since the shortcut method ended. Under the revised fixed-rate method, you must keep a representative record of your hours worked from home. This doesn't necessarily mean logging every single day all year, but you must be able to show a pattern — typically via a diary, roster, or timesheet — that supports the number of hours you're claiming.

Rounding up to a suspiciously clean figure (say, exactly 1,500 hours for the year with no documentation) is a red flag.

3. Conflating the old 80-cent shortcut with the current 67-cent method

Some taxpayers — and unfortunately, a small number of tax preparers — have carried forward habits from the pandemic-era shortcut. The 80-cent shortcut covered everything, including equipment depreciation. The current 67-cent rate does not cover depreciation. That's a meaningful difference.

If you're using 67 cents per hour and also claiming decline in value on a laptop or second monitor, that's actually fine — because depreciation is legitimately excluded from the fixed-rate bundle. But if you think you're using the old rules, you might inadvertently be under-claiming on equipment or over-claiming on running costs.

How the ATO Catches These Errors

The ATO isn't relying on manual audits alone. It uses sophisticated data matching and analytics to identify returns that deviate significantly from the average for a particular occupation, income level, or employer type.

Key data sources the ATO uses include:

Employer payroll data via Single Touch Payroll (STP) — the ATO knows your income, employer, and industry before you even lodge
Financial institution data — bank records, credit card statements shared under reporting obligations
Government benefit and payment records — Medicare, Centrelink, state revenue offices
Third-party platforms — share registries, managed funds, property transaction records

When your deductions look unusual relative to peers in your industry, a flag is raised. That can trigger a review, a letter asking for documentation, or in serious cases, a formal audit.

The ATO has also explicitly stated it is using occupation-based analytics. A nurse claiming $8,000 in WFH expenses is going to raise eyebrows in a way that a software developer fully remote on 1,800 hours per year simply wouldn't.

Worked Example: Getting It Right vs. Getting It Wrong

Let's walk through how these approaches play out in real dollar terms.

Scenario: Sarah is a marketing coordinator who worked from home for 48 weeks of the financial year, averaging 38 hours per week. She has a dedicated home-office area, a laptop provided by her employer, and uses her personal mobile phone for some work calls.

Total WFH hours: 48 × 38 = 1,824 hours

Correct approach (revised fixed-rate method):

Item	Calculation	Amount
Fixed-rate running costs	1,824 hours × $0.67	$1,222
Laptop depreciation (not included in fixed rate)	$2,400 device ÷ 3-year effective life × 80% work use	$640
Phone bill — separately claimed?	❌ Already in fixed rate	$0
Internet — separately claimed?	❌ Already in fixed rate	$0
Total deductible WFH expenses		$1,862

Incorrect approach (double-dipping):

Item	Calculation	Amount
Fixed-rate running costs	1,824 hours × $0.67	$1,222
Mobile phone (incorrectly added)	50% × $1,200 annual plan	$600
Internet (incorrectly added)	40% × $900 annual plan	$360
Laptop depreciation	$2,400 ÷ 3 years × 80%	$640
Incorrectly claimed total		$2,822

The difference is $960 in overclaimed deductions. At a 32.5% marginal tax rate, that's about $312 in extra refund Sarah isn't entitled to. The ATO's systems are designed to spot patterns like this — and Sarah's return contains two items (phone and internet) that simply cannot coexist with a fixed-rate claim.

Want to see how your overall income tax position looks? Use Dolaro's Income Tax Calculator to estimate your tax liability and see where deductions genuinely move the needle.

The Actual Cost Method: More Work, Potentially More Reward

If your home-office expenses are genuinely high — a large broadband plan you use heavily for work, significant utility bills, and multiple pieces of equipment — the actual cost method may yield a larger deduction and is entirely legitimate. It's just more paperwork.

Under the actual cost method, you need to:

Calculate the work-related proportion of each expense individually
Maintain receipts and records for all expenses being claimed
Establish a reasonable "work use" percentage, typically using a 4-week diary period that's representative of the whole year

For most PAYG employees, the fixed-rate method will be simpler and sufficient. But sole traders, consultants, and high-income earners with dedicated home offices should run the numbers both ways — or get a tax agent to do so.

What Else Is the ATO Looking at in 2026?

While WFH deductions are top of the list, the ATO has signalled several other areas under active scrutiny this tax year:

Side hustle and gig economy income

With the growth of platforms like Uber, Airtasker, Airbnb, and various freelance marketplaces, the ATO is increasingly matching data from these platforms against lodged returns. If you earned income from a side hustle — even a small amount — it needs to be declared. This includes one-off freelance payments, income from renting out a room, and income from selling goods online if done with a profit-making intention.

Rental property deductions

The ATO has flagged that rental property owners are one of its highest-risk categories for incorrect claims. Common errors include claiming the full interest on a loan that was partly refinanced for personal use, claiming repairs that are actually capital improvements (which must be depreciated, not immediately deducted), and incorrectly applying the 50% CGT (capital gains tax) discount.

If you own an investment property, Dolaro's Rental Income Tax Calculator can help you estimate what's legitimately deductible and what isn't.

Incorrect income reporting

Pre-fill data is getting increasingly accurate, but it's not perfect — especially for people with multiple jobs, investment distributions, or employer-provided benefits. The ATO strongly recommends checking your pre-fill data against your own records rather than simply accepting it.

Capital gains from crypto and shares

The ATO has been explicit: cryptocurrency is a taxable asset. Every disposal — including swapping one coin for another — is a taxable event. Similarly, gains from shares and ETFs need to be reported accurately, including applying the 12-month CGT discount correctly where eligible.

Record-Keeping: Your Best Defence

If the ATO questions your claim, the burden of proof is on you — not the ATO — to demonstrate that your deduction is legitimate. This makes good record-keeping your single most important protection.

For WFH claims, keep:

A diary or log showing the hours you worked from home (a representative 4-week diary is sufficient if consistent across the year)
Receipts for any equipment purchased and claimed
Documents showing the work-related nature of the expense (e.g., a note explaining why a second monitor was required for your job)

For all other deductions:

Keep receipts, invoices, and bank statements for five years after lodgement
If your employer provides a reimbursement for anything you're trying to claim, you cannot also claim it as a deduction — that's another common double-dip

Key rule: If you can't show a document to support a claim, you shouldn't be making it. The ATO accepts digital copies of receipts — apps like the ATO's myDeductions tool or a simple folder in Google Drive work perfectly well.

Should You Use a Tax Agent?

If your tax affairs are straightforward — one job, no investments, a modest WFH claim — lodging via myTax is fine for most people. But if any of the following apply to you, a registered tax agent adds real value:

You have rental property income or expenses
You have capital gains from shares, ETFs, or property
You're self-employed or have significant contractor income
You're claiming large or complex WFH deductions
You've received a letter from the ATO about a prior-year return

Registered tax agents are also personally liable for the advice they give and must keep up with ATO guidance. That professional accountability matters when the rules are genuinely complex.

Frequently Asked Questions

Can I claim both the 67-cent fixed rate and my phone bill as a separate deduction?

No. Under the revised fixed-rate method, your phone costs are already included in the 67 cents per hour rate. Claiming them separately as well is double-dipping and is one of the most common errors the ATO is actively targeting in 2026.

What records do I need to claim work-from-home expenses?

You need a record showing the hours you worked from home — a timesheet, diary, or roster. You don't need to log every day all year; a representative 4-week record that reflects your typical pattern is acceptable. You also need receipts for any separately claimed equipment.

What's the difference between the old 80-cent shortcut and the current 67-cent method?

The 80-cent shortcut (available during the pandemic period, now retired) covered absolutely all home-office running costs and equipment depreciation. The current 67-cent method covers running costs like electricity, internet, and phone — but does not cover equipment depreciation, which can be claimed separately.

Is my mortgage or rent deductible if I work from home?

Almost certainly not, if you're an employee. Occupancy costs (rent, mortgage interest, council rates) are only deductible if your home is a genuine place of business — typically a sole trader who has a dedicated area used exclusively and regularly for business and sees clients there. A standard employee working from a spare bedroom or kitchen table cannot claim these costs.

What happens if the ATO reviews my work-from-home claim?

The ATO will typically contact you in writing and ask you to substantiate your claim with records. If you can produce a diary, receipts, and a clear explanation of how you calculated your deduction, the review will generally resolve without penalty. If you can't substantiate the claim, it will be disallowed and you'll owe the tax back — plus potential interest and penalties if the ATO determines the error was more than a genuine mistake.

Can I still claim if I only worked from home occasionally?

Yes — you can claim for the actual hours you worked from home, even if it was occasional. Simply multiply those hours by 67 cents (using the fixed-rate method) or work out the actual costs for those days. There's no minimum threshold, but your records need to reflect the hours accurately.

What if I made an error in a previous year's return?

You can request an amendment to a prior-year return via myGov or through a registered tax agent. It's far better to voluntarily correct an error than wait for the ATO to find it — voluntary disclosures generally attract reduced penalties.

Related Calculators and Guides

Income Tax Calculator — estimate your 2025–26 tax and see how deductions affect your refund
Pay Calculator — calculate your take-home pay with tax, Medicare levy, and super factored in
Rental Income Tax Calculator — work out the tax on your rental property income
Capital Gains Tax Calculator — estimate CGT on shares, crypto, or property
HECS-HELP Repayment Calculator — see how your income affects your student loan repayments

Income tax rates and ATO compliance focus areas are current as at July 2026 and may change — always verify current figures before acting.

This article is for general information only and does not constitute financial, tax or legal advice. Individual circumstances vary. Consult a registered tax agent or licensed financial adviser before making decisions based on this information.