The ATO has found that some taxpayers are incorrectly claiming rent, mortgage interest and other occupancy costs as part of their working from home expenses. The key to getting it right is understanding the difference between running expenses and occupancy expenses, and what you’re eligible to claim.
Running expenses are the extra costs you incur working from home. These can include costs for heating, cooling or lighting; internet or data; phone costs; stationery; computer consumables; and the decline in value of office furniture or equipment not provided by your employer. Note that you can’t claim expenses that have been reimbursed by your employer.
Occupancy expenses are the costs of owning or renting your home. These include mortgage interest, rent, council and water rates, land tax and house insurance premiums.
Employees can generally claim running expenses if they work from home to perform their substantive employment duties (eg not just answering a few emails or taking phone calls), incur additional costs as a result, and keep records to support the claim. There are two ways to calculate the deduction:
fixed rate method: For the 2025–26 income year, the fixed rate is 70 cents per hour worked from home. This covers energy, internet, phone, stationery and computer consumables. You can make separate claims for depreciating assets such as office furniture, computers or other work-related equipment.
actual cost method: This method lets you claim the work-related portion of your actual additional expenses. You must keep records that represent the hours you worked from home, such as timesheets, rosters or a diary showing at least a 4-week regular pattern of work, alongside detailed records of expenses incurred and how you calculated the work-related portion.
Occupancy expenses are rarely deductible for employees. To claim occupancy expenses, you generally need to show that your home work area has the character of a place of business. This may be the case if the nature of your income-earning activities requires a place of business, your employer doesn’t provide another work location, and the workspace is used exclusively or almost exclusively for work.
A home workspace may be a place of business if that it’s clearly identifiable as a business area; is not readily suitable for private or domestic use; is used regularly for work; and, where relevant, is used for client or customer visits.
If you’re eligible to claim occupancy expenses, you must apportion them (which means calculating amounts related to private use versus work use) and only claim the work portion. This is generally based on the floor area used for work; the period the area was used for work during the year; and your ownership or share, if the property’s jointly owned or the rent’s shared. You also need records such as mortgage interest statements or rental receipts, council and water rate notices, house insurance documents and a floor plan showing the work area.
There may also be capital gains tax consequences for occupancy expenses when using part of your home as a business premises. If your home was acquired after 20 September 1985 and is partly used as a place of business, you may lose part of the main residence exemption when you sell the property, even if you don’t claim all available occupancy expenses.