"2026" usually means the 2025-26 income year (1 July 2025 to 30 June 2026), with returns lodged from 1 July 2026. The 2026-27 year starts on 1 July 2026, and no 2026-27 rate is verified here, so check the ATO before assuming it matches.
This guide covers eligibility, expenses, the fixed-rate and actual-cost methods, records, common mistakes, and why US IRS rules don't apply to an Australian return.
Key Takeaways
- Employees, sole traders and contractors face different rules.
- Only the work-related portion of an eligible, unreimbursed expense counts.
- Fixed-rate and actual-cost methods differ in records and covered expenses.
- Check current ATO guidance and keep records before lodging.
Who Can Claim Work-from-Home Deductions in Australia?
The ATO's three golden rules apply to everyone. You must meet all three:
- You spent the money yourself and were not reimbursed
- The expense relates directly to earning income
- You have records to prove it
Private use is excluded.
Employee considerations
Employees need to be doing substantive employment duties at home and incurring additional expenses. Occasional emails or calls aren't enough. The ATO's ruling TR 93/30 uses a teacher preparing lessons and marking at home as an example.
Working at home by choice doesn't itself rule out additional running costs. But keeping a study for convenience generally doesn't justify occupancy costs.
No separate concession exists for overseas employers. Expenses that earn assessable foreign employment income remain claimable under the normal employee tests, if you have not claimed them elsewhere. You can't claim laptops or phones your employer provides, or anything already reimbursed.
Sole traders, contractors and other business operators
Business operators deduct only the business-use portion, separating out employment and private use. Creditable GST is excluded from the income-tax deduction. Where the personal services income (PSI) rules apply, deductions for residential rent, mortgage interest, rates and land tax relating to PSI are restricted.
If you earn both wages and business income, allocate each expense to the income it relates to. The ATO's example: Rob buys a $150 calculator, used 60% for employment and 40% for his sole-trader business. It qualifies for an immediate deduction, split across both activities.
Reimbursements and employer-provided costs
An expense your employer reimburses or pays directly can't also be a personal deduction. Allowances are different.
| Employer payment | Treatment |
|---|---|
| Allowance | Predetermined estimate of expenses. Report it as income; receiving one does not establish a deduction. |
| Reimbursement | Pays back an incurred expense, generally exactly. Not income, and that expense is not deductible. |
Which Work-from-Home Expenses May Be Deductible?
Running expenses
Additional electricity and gas for work-related heating, cooling and lighting can qualify. The word is additional. In the ATO's example, Lee shares a lounge room with family watching television, so he has no extra heating, cooling or lighting cost to claim.
Phone, internet and consumables
Phone, internet, stationery and computer consumables such as printer supplies are covered by the fixed-rate method. They aren't claimed separately on top of it. Under actual costs, apportion them between work and private use using usage records, such as a representative four-week period.
Equipment, repairs and decline in value
Computers, monitors, desks and office equipment are claimed through decline in value or an immediate deduction. Eligible repairs and maintenance sit outside the fixed rate. Apportion private use.
Two separate asset tests exist, so keep them apart:
- Employees and non-business use: asset costs $300 or less, is used mainly (more than 50%) to produce non-business income, and is not part of a set or identical items that together cost over $300.
- Small business: instant write-off for eligible assets costing less than $20,000, first used or installed ready for use from 1 July 2025 to 30 June 2026, where aggregated turnover is below $10 million. Apply the threshold to the full cost before apportioning business use.
Dedicated-office cleaning can also be claimed, apportioned for private use.
Occupancy expenses and costs that may not qualify
Occupancy costs are rent, mortgage interest, rates and insurance. Employees generally can't claim them.
Business operators may claim them when the home is a genuine place of business. Typical markers include identifiable premises, limited domestic adaptability, exclusive or almost exclusive business use, or regular client visits. Employee exceptions also require necessity because the employer provides no alternative workplace.
The ATO's example: Abdul's qualifying 6 m² office in a 120 m² townhouse supports 5% of annual rent, a $1,040 deduction. A lounge-room dining table doesn't qualify.
Commonly misunderstood costs:
- Ordinary rent or mortgage payments (employees)
- Personal furniture and general household items
- Home improvements treated as capital works (deducted over years if income-producing)
- Anything already reimbursed
Income-producing occupancy can also affect your main-residence CGT exemption. Employee running-expense claims don't.
How to Calculate Your 2026 Work-from-Home Deduction
The fixed-rate method
The rate is 70c per hour for 2025-26, unchanged from 2024-25. It covers energy, home and mobile phone, internet and data, stationery and computer consumables. You can still claim asset decline in value, repairs and qualifying cleaning separately.
You need:
- Actual hours worked from home across the whole year (timesheets, rosters, logs, apps or a diary kept throughout the year)
- At least one bill or record for each cost category incurred
- A purchase receipt for stationery and consumables
Example: Keisha worked 843 hours, giving a $590 deduction. She can't add a phone claim for non-WFH days, because phone costs are already covered.
The actual-cost method
Work out the additional cost of working from home, then claim only the work-related share.
To support the claim:
- Gather bills and receipts, keep your calculations, and exclude private use
- Record hours with annual records or a continuous representative four-week diary of usual working from home
- Apportion shared costs on a reasonable basis, such as hours, usage records or floor area
Comparing the two methods
| Fixed rate | Actual cost | |
|---|---|---|
| Records | Whole-year hours plus one bill per category | Bills, calculations, usage records |
| Hours evidence | Annual actual hours only | Annual hours or four-week diary |
| Effort | Lower | Higher |
| Accuracy | Standard rate | Reflects real costs |
Neither is always better. Covered expenses can't also be claimed under actual costs.
Hypothetical example (illustrative only, not ATO figures): Sam works 1,000 hours from home. Fixed rate gives $700. Sam's actual-cost calculation shows $450 of additional energy, phone and internet use, so fixed rate wins with fewer records.
If Sam's calculated cost were $900, actual cost would win but needs more evidence.
Changes during the year
Changed work patterns, a new home, a new employer, leave or shared equipment all affect your work-related percentage. Actual-cost evidence must reflect usual patterns.
Fixed-rate hours must capture actual hours throughout the year, including changed arrangements. The ATO hasn't expressly confirmed mixing methods across parts of 2025-26, so check before switching.
How to Keep Records and Claim the Deduction
Evidence to retain
- Receipts and invoices
- Electricity, phone and internet bills
- Employer reimbursement records
- Asset purchase documents
- Work-hour records
- Your work-related percentage calculations
Hold most records for 5 years from lodgment. Depreciation records run five years from your last claim, and property or CGT records may need longer.
Paper, electronic copies and clear photos all count as true copies.
Work-hour and apportionment records
Record the days and hours you work at home. Note how you split shared costs, whether by hours, usage or floor area.
The ATO's myDeductions tool logs expenses, receipt images and daily hours, and exports CSV files. Fixed-rate hours pre-fill into myTax. Records stay on your device and aren't backed up automatically.
Lodging and professional support
Employees report claims at D5 Other work-related expenses, label E on the paper return, or the "Other work-related expenses" section in myTax. Sole traders report within business income and expenses, and keep their home-office calculations.
For complex cases, use a registered tax professional. VJM Global offers accounting outsourcing and tax compliance support for businesses with complex bookkeeping, multiple entities or cross-border operations.
Common Mistakes and Special Situations
Don't copy US guidance, IRS forms or US employee rules into an Australian return. Check claims against ATO sources.
The ATO's 27 April 2026 release flags work-related deductions as an error focus, including excessive apportionment. It also warns against copy-and-paste returns where jobs or circumstances changed.
Avoid double claiming:
- Claiming a reimbursed expense
- Claiming fixed-rate-covered costs again
- Treating a private expense as fully work-related
- Estimating annual hours
Higher-risk situations:
- Working for a foreign employer
- Running a side business from the same home
- Using one room for private and business purposes
- Moving home during the year
- Claiming occupancy costs without checking the rules
Frequently Asked Questions
What are the IRS rules for home office deduction 2026?
They're US rules, not Australian law. Publication 587's simplified method is US$5 per square foot, up to 300 square feet. Australians follow ATO rules.
What can I deduct on taxes if I work from home?
You may claim running costs, phone and internet, consumables and equipment when eligible. Apportionment and reimbursement rules still apply.
Can employees claim work from home expenses in Australia in 2026?
Yes, if you meet the ATO conditions and keep records. The 2026 instructions offer the 70c-per-hour fixed rate or actual costs.
Should I use the fixed-rate or actual-cost method?
The fixed rate is simpler but needs whole-year hours. Actual cost needs more records but reflects real costs. Compare both before choosing.
Can I claim rent or mortgage interest for a home office?
Employees generally can't. Business operators may, with a genuine place of business, and PSI and CGT rules can apply.
What records do I need to keep?
Keep receipts, bills, hour records, usage calculations, asset records and proof of any reimbursement or allowance.
