✉ info@sasrecon.com ☎ 083 379 2118

Is working from home tax deductible? Key rules to know

Working from home can be tax deductible in Australia, but a laptop and a few phone bills do not automatically qualify. The ATO generally allows deductions for expenses incurred in carrying out work for assessable income. For home working, the key questions are whether the expense relates to earning income, whether it is a private cost and whether records can establish the business portion. A deduction reduces taxable income; it does not necessarily reduce tax by the same amount.

The rules differ between an employee, a sole trader and a company director. Workers also need to distinguish a genuine home office from simply preferring the couch for ordinary employer hours. Because the answer depends on matters such as employment status, employer requirements, available workspace and how a room is used, the same arrangement can produce different outcomes. Australian taxpayers should apply the rules published for the relevant income year.

Who can claim a home workspace deduction

An employee can claim eligible work expenses they personally pay for, provided the expense relates to earning income and any private use is apportioned. This can include business-use equipment, a separate phone line and work-related data. The employee cannot deduct wages already paid by the employer, and ordinary commuting from home to a regular workplace generally remains private. If an employer pays an allowance or reimburses a cost, the treatment depends on whether the payment is a fringe benefit, a reimbursement or taxable income.

A sole trader or partnership can claim expenses for business use of home when the home is the business’s principal place or a dedicated area is used exclusively for business. A company may claim costs where the company bears them and the arrangement is genuine. A contractor normally claims the expenses they personally incur and invoices the client; the client should not claim the contractor’s personal costs. Employment labels in a contract should reflect the actual working relationship rather than the wording alone.

What makes a home office eligible

Business use of a home office must generally be exclusive and substantial. A spare bedroom used for work, sleep, storage and visitors usually fails the exclusive-use test, so its electricity, internet and occupancy costs cannot simply be allocated as a home-office deduction. A separate study set aside for work is easier to support, particularly for a self-employed operator whose business depends on that space.

For employees, the ATO recognises a home office when it is their principal place of business, when duties must be carried out at home and the employer provides no alternative, or in certain regular home-working situations where no suitable workplace is available. Merely choosing to work at home because it is convenient does not establish entitlement to a broad room deduction. An employer-provided office, equipment and clear attendance expectations can also affect the assessment.

Measure the eligible area in square metres and retain a simple floor plan or photograph. Record hours worked there and explain how other areas are used. For example, a renter in a Sydney or Melbourne apartment may have a compact study but substantial strata charges. Strata levies are generally not deductible merely because the apartment contains a workspace, and an open-plan living room is harder to treat as an exclusive office than a dedicated room.

Choosing between simplified and actual costs

The simplified home-office method is usually the easiest for people with modest costs. For the 2023–24 and 2024–25 income years, the ATO rate is 300 cents per hour for each hour worked at home; workers should check the published rate for the year being claimed. The calculation is based on work hours rather than the percentage of floor area used. It replaces the running-cost claim for electricity, gas, telephone and internet, so those same costs cannot also be claimed under the actual-costs method.

The actual-costs method can produce a larger result when running and occupancy costs are high. Start with eligible household running costs, such as electricity, gas, internet and a separate home telephone, then apply the permitted business-use proportion. Occupancy costs require separate analysis and generally need exclusive business use of the space; eligible rent can form part of an actual-cost claim. Mortgage interest or depreciation attached to a home kept as a private principal residence is generally not deductible, unlike a genuine rental-property arrangement.

Choose the method that fits the evidence and keep enough detail to reproduce the calculation. A tenant should not claim all household rent simply because a desk is in one room, and a home owner should not automatically copy the interest treatment available on an investment property. Office furniture and equipment may support a separate depreciation claim even when the simplified method covers running costs, provided the work-related share is identified and the same asset is not claimed twice.

Eligible expenses and Australian household realities

Running-cost claims need evidence from Australian bills rather than estimates alone. Keep electricity and gas invoices, the NBN or other broadband account, landline records and mobile-phone usage. If a mobile plan or internet package is shared with family members, retain the plan and a reasonable business allocation. This matters especially under the actual-cost method because the household total and business percentage form the basis of the claim.

Season and location affect actual bills. A Brisbane household may have higher cooling costs during long, hot summers, while a Melbourne household may spend more on heating in winter. Electricity tariffs and standing charges also differ across states, with South Australia’s network charges adding a fixed element to some bills. These differences are why an actual-cost claim can exceed a simplified hourly deduction, although every invoice must still support the figure.

Common non-deductibles include ordinary meals, entertainment, clothing suitable for everyday wear and household costs used only for private purposes. Mobile data bundled with an internet plan needs careful separation from personal use. If a worker buys a desk, chair or computer for the office, depreciation may be relevant, but private use must be considered and an employer-provided asset is not the employee’s deductible expense. GST treatment is separate from whether an expense is deductible.

A practical home office checklist

Keep records for at least five years. Useful evidence includes invoices, receipts, a calendar or diary of home-office hours, floor measurements, a home-use plan and written employer directions about working from home. Retain original electronic invoices showing Australian-dollar charges and the relevant payment details. For broader consumer research connected to a home-office budget, the SASReCon resource collection is a useful reference, while ATO material should control tax decisions.

File the claim in the personal income tax return for the relevant year and respond accurately if the ATO asks about work patterns or receipts. A deduction lowers taxable income but does not guarantee a refund, and marginal tax rates vary. If the arrangement changed during the year, apportion hours and costs to the period that met the requirements rather than treating the whole year as eligible.