Deductions
Fixed rate method
The fixed rate method is a simplified way to claim working from home running costs by multiplying actual hours worked at home by a per-hour rate set by the ATO.
The fixed rate method is one of the ways an individual can claim a deduction for the extra running costs of working from home. Instead of working out how much of each electricity, gas, phone and internet bill relates to work, you multiply the number of hours you actually worked from home by a single per-hour rate published by the ATO. That rate is reviewed from time to time, so the current figure should always be checked on ato.gov.au.
The hourly rate is intended to cover several costs together. These generally include energy for heating, cooling and lighting, mobile and home phone usage, internet, and stationery and computer consumables. Because these costs are already built into the rate, you cannot claim them again separately under another method. Other costs sit outside the rate, such as the decline in value of office furniture and equipment, and repairs and maintenance of those items, which can be claimed separately if you meet the usual rules.
The method depends on good records. You need a record of the actual hours you worked from home across the whole income year, for example a timesheet, roster, diary or similar document. A rough estimate or a sample week is not enough. You also need to keep evidence that you incurred the types of expenses the rate covers, such as a bill for each type of cost. Without these records a deduction can be reduced or denied on review.
For employees, the method suits people who work from home regularly but do not want to track every bill. It can also be used by some people who run a business from home, although business owners with a dedicated place of business often prefer other approaches that better reflect their actual occupancy and running costs. If you use the fixed rate method you generally cannot also use another method for the same running costs in that year.
Home office deductions are an income tax matter and do not directly involve GST. However, if you run a business and are registered for GST, you may be able to claim GST credits on business purchases. Credits are based on the actual business portion of what you paid and require a valid tax invoice, so the fixed rate method does not replace the need to keep invoices for items you buy for the business.
A common misunderstanding is that you can claim a flat amount for being at home on any day. You can only count hours spent actually working, and you cannot claim for time spent on private activities. Another mistake is claiming both the fixed rate and a separate phone or internet deduction. The content here is general information only, so confirm your own circumstances with the ATO or a registered tax professional before lodging.
Worked example
Priya is an employee who works from home on set days. Her timesheets show she worked 1,200 hours at home during the income year. Assume the ATO fixed rate for that year is $0.70 per hour, purely for illustration. Her running cost deduction is 1,200 x $0.70 = $840. She also bought a desk for $450 and claims its decline in value separately, because the rate does not cover furniture. She keeps her timesheets and one internet bill.
Practical tips
- Keep a running record of hours as you go, such as a timesheet or diary. Reconstructing hours at tax time is hard to defend if the ATO asks for evidence.
- Do not claim phone, internet or electricity separately when you use the fixed rate method, because those costs are already built into the rate.
- Check the current hourly rate and record requirements on ato.gov.au each year, as the rate and guidance can change.