Working From Home: Fixed Rate vs Actual Cost Method
If you work from home some or all of the time, the ATO gives you two ways to claim the extra running costs: a fixed rate per hour, or the actual costs you can prove. Neither is automatically better. The right choice depends on your setup, your bills and, above all, how much record-keeping you are willing to do.
Key takeaways
- Employees can generally claim working-from-home running expenses using either the fixed rate method or the actual cost method.
- The fixed rate method multiplies your hours worked from home by a rate the ATO sets; check the current rate on the ATO's working-from-home page.
- The fixed rate method requires a record of the actual hours you worked from home across the whole year, not an estimate.
- The actual cost method can produce a larger claim in some setups, but needs detailed records for every expense and how you calculated the work share.
- Occupancy costs such as rent, mortgage interest and council rates are generally not claimable by employees who simply work from home.
What counts as working from home
Both methods apply when you work from home to fulfil your employment duties, not just when you check emails occasionally or do minor tasks. You must also incur additional running expenses because you work from home, such as extra electricity, gas, phone or internet use. If you live somewhere your employer or someone else pays all the bills and you bear no extra cost, there may be nothing to claim.
The ATO's working-from-home guidance sets out the conditions for each method. Start from the deductions section at ato.gov.au/individuals-and-families and look for working-from-home expenses.
The fixed rate method
Under this method you multiply the number of hours you worked from home by a single rate per hour set by the ATO. That rate is intended to cover a bundle of running costs together: generally energy for lighting, heating, cooling and electronics; mobile and home phone usage; internet; and stationery and computer consumables. Because these are covered by the rate, you can't claim them separately as well.
Some costs sit outside the bundle and can be claimed separately if you meet the usual rules, such as the decline in value of equipment and furniture you use for work, and repairs to that equipment.
The record-keeping requirements are the part people underestimate:
- A record of the actual hours you worked from home for the entire income year. Timesheets, rosters, logs from work systems, or a diary kept as you go all work. A sample period or an estimate does not.
- Evidence that you incurred each type of expense covered by the rate, such as one bill for each.
- Separate records for anything you claim outside the rate, such as receipts for a desk or monitor.
The actual cost method
Here you work out the real additional cost of each running expense caused by working from home. That means taking each bill, deciding how much relates to work, and documenting the basis for that split.
For example, for electricity you might work out the power use of the equipment and lighting you use while working; for phone and internet you might keep a diary over a representative period to estimate the work share, then apply it to the year. Depreciating assets such as computers and office furniture are claimed based on their decline in value and work-use percentage, with lower-cost items possibly deductible immediately under the ATO's rules.
The method is flexible but demanding. You need records of every expense and a defensible calculation for each one. A dedicated home office can make some calculations simpler, but it is not always required; check the ATO guidance for how your arrangement is treated.
The fixed rate method trades accuracy for simplicity, but it doesn't remove record-keeping. It moves the burden from your bills to your hours.
Side-by-side comparison
| Feature | Fixed rate method | Actual cost method |
|---|---|---|
| How the claim is calculated | Hours worked from home multiplied by the ATO's current rate | Work-related share of each actual expense |
| Energy, phone, internet, stationery | Covered by the rate; not claimed separately | Claimed individually based on work-use |
| Equipment and furniture | Claimed separately (decline in value or immediate deduction where allowed) | Claimed separately on the same basis |
| Key record | Actual hours worked from home for the whole year | Every bill plus a documented basis for each work share |
| Effort | Low to moderate | High |
| Tends to suit | Most employees with an ordinary home setup | People with high, measurable work-driven running costs and the patience to document them |
How to choose in practice
- Check you have the hours record. If you don't have reliable records of your actual hours for the full year, the fixed rate method is off the table for that year, and you need the actual cost records instead.
- Estimate both ways. Work out a rough fixed-rate claim from your hours and the current published rate. Then estimate the actual work share of your bills. If the actual-cost figure isn't meaningfully higher, the extra paperwork usually isn't worth it.
- Consider your equipment separately. Under either method, think about the desk, chair, monitor or computer you use for work. Those claims follow their own rules regardless of the method you pick.
- Be consistent within the year. Choose a method for the year and apply it to the running costs it covers. Read the ATO page for the year you are lodging, because conditions have changed in the past.
Two households, two different answers
Consider an office worker who works from home a couple of days a week from the kitchen table, using a laptop supplied by their employer and an ordinary home internet plan. Their extra running costs are modest and hard to measure precisely. The fixed rate method, backed by a simple log of hours kept in a calendar, is likely to be both easier and close to the best available outcome.
Now consider a designer who works from home full time in a spare room, running a powerful desktop computer, large monitors and a heater through winter, with a separate phone line used almost entirely for work. Their work-driven costs are large and measurable. The actual cost method may justify the extra effort, provided they document the equipment's power use, keep every bill and record how they calculated each work share.
What you generally can't claim
Employees working from home generally can't claim occupancy expenses: rent, mortgage interest, council rates, land tax or home insurance. Those are costs of having a home, not of working in it. Claiming them can also have capital gains consequences for your home in some situations. People whose home is genuinely their place of business are in a different position, and that is a conversation for a registered tax agent.
Items your employer supplied or reimbursed can't be claimed. Nor can personal items like coffee, tea or snacks, or costs related to children's education devices.
Frequently asked questions
Can I switch methods from one year to the next?
Generally yes. The choice is made for each income year, as long as you meet the conditions and keep the records required for the method you use that year.
Do I need a separate home office room?
Not necessarily. Neither method requires a dedicated room in every case, but the way you calculate actual costs can depend on your arrangement. Check the ATO's current guidance for your situation.
Where do I find the current fixed rate?
The ATO publishes the rate on its working-from-home expenses page, and it can change between income years. Always use the rate for the year you are lodging.
Is an estimate of my hours good enough?
No. For the fixed rate method the ATO requires a record of your actual hours worked from home. Start keeping one at the beginning of the year so the claim is easy at the end.
Verdict: For most employees, the fixed rate method is the sensible default, provided you keep a genuine log of your hours from the first day of the financial year. Choose the actual cost method only if your work-driven running costs are unusually high and you are willing to document every bill and every calculation. When to see a registered tax agent: if you run a business from home, use a dedicated room exclusively for work, or are tempted to claim rent or mortgage interest, get advice first, because the consequences can reach beyond a single year.