Guide 3 of 5 · Every day at the desk
Working from home expenses when the business is yours
A sole trader can claim the extra running costs of working from home, at a fixed rate for each hour worked there or as the actual cost, and each method comes with its own records. Rent, mortgage interest and other occupancy costs are a separate question, open only when part of the home has the character of a ‘place of business’.
General information about the ATO’s rules, not tax advice for your home or business. The official place to check is the ATO; a registered tax agent can say which method suits your records.
Three ways to count running expenses
Running expenses are things like cleaning, electricity for heating, cooling, lighting and the electronics you work on, phone and internet, stationery and computer consumables, and the decline in value and repairs of equipment and furniture. The ATO’s page for sole traders and partnerships describes three methods for the business portion, and the difference that matters day to day is what each one asks you to keep.
| Method | What it covers | Records the ATO lists |
|---|---|---|
| Fixed rate | A rate for each hour worked from home, covering electricity, gas, internet, mobile and home phone, stationery and computer consumables. No separate claim for those. Equipment and its repairs are claimed separately. No area set aside exclusively for the business is needed. | “A record of all hours worked from home for the entire income year, such as timesheets”, a roster or a diary; evidence for each running expense the rate covers that you have incurred, for example one monthly or quarterly bill for each; records of personal and business use of equipment and other expenses the rate doesn’t cover. |
| Actual cost | The additional expenses you actually incur running the business from home. No area set aside exclusively for the business is needed. | What you spend on expenses and on equipment you buy and use, the business-use share of each, and all receipts, bills and other documents for the extra running costs. A diary for a representative 4-week period can set the pattern for the year, leaving out holidays and time off sick; with no regular pattern, a record of each time you use the area and what it was used for. |
| Floor area | Only where part of the home is set aside as a ‘place of business’: the share of costs such as cleaning, electricity and gas, by that area’s share of the floor, and only for the part of the year it was a place of business. | Your expenses, and how you worked out the floor-area percentage. |
Whichever method you use, the business use has to be substantial, not incidental; the ATO’s example is that you can’t claim electricity for 24 hours a day because a fax machine is always on. If you are unsure, the ATO says you can work the figure out each way and choose the one with the best result.
The fixed rate, with its years
The ATO’s fixed rate page gives 70 cents per work hour for the 2024–25 and 2025–26 income years. To use the method, it says, you must have extra running expenses because you work from home, and keep a record of all the hours you work from home and of the expenses you have while working there. The guideline behind the method, PCG 2023/1, covers working from home while carrying on a business as well as in a job. The rate is set by income year, so the page for the year you are claiming is the one to read.
The hours need writing down as you go. In one of the ATO’s examples, hours that were estimated for part of the year can’t be counted: “Only a record kept at the time the hours are worked from home is acceptable.” The work has to be substantive and directly related to earning the income: minimal tasks, such as occasionally checking emails or taking phone calls at home, don’t count as working from home for the method. For a marketer whose phone is never far away, the hours in the record are the substantive ones.
Is part of your home a ‘place of business’?
“Occupancy expenses are what you pay to own, rent or use your home.” The ATO’s list: council rates, house insurance premiums, land taxes, and mortgage interest or rent. A sole trader can claim the business share of them only when the area set aside has the character of a ‘place of business’. The ATO lists the signs:
“Signs that an area of your home has the character of a ‘place of business’ include:
ATO, Home-based business expenses: sole trader or partnership
- clearly identifiable as a place of business, for example, you have a sign identifying your business at the front of your house
- not readily suitable or adaptable for private or domestic purposes
- used exclusively or almost exclusively for carrying on your business
- used regularly for visits by your clients.”
Its example is a home hair salon, separate from the family living areas with its own entry for clients. A desk in the dining room is the other end of the scale. In the ATO’s example of a sole trader who does her bookkeeping on a computer in her dining room, the one thing listed under “Harper can’t claim” is “occupancy expenses, as she does not have a dedicated area of her home set aside for her business.”
Two cautions sit beside the occupancy rule on the same page:
- “if the personal services income (PSI) rules apply to your business, you may not be able to claim occupancy expenses.” The ATO points to its PSI tool for working that out.
- Selling a home with a place of business in it may mean tax on a capital gain, and the ATO says that holds even where no mortgage interest was ever claimed.
Running expenses, by contrast, can be claimed without any area set aside as a place of business.
Phones, computers and other equipment
Equipment used only for the business is depreciated on its full cost; equipment also used privately, on its business-use percentage. A GST-registered sole trader who can claim the GST credit on a purchase leaves that GST out of the cost. With the fixed rate method, the decline in value of furniture, computer equipment or laptops is still claimed separately.
For phones, a home phone or mobile used only for the business allows a deduction for all call, purchase and rental costs, but not for installing a home phone, buying a phone or mobile, or installing internet, which are capital expenses. Used for both, only the business portion counts, which an itemised bill can show by counting business calls against all calls. For internet, the claim is the share of time or data used for the business.
Whatever the method, keep accurate records of how each figure was worked out. When you estimate your tax to enter PAYG instalments voluntarily, the ATO asks for your allowable deductions as well as your income. The receipts sit with the invoices described in the tax invoices guide.