Home office deductions for sole traders: fixed rate vs actual cost

What counts as working from home

You need to be doing real work: designing, writing, quoting, bookkeeping, calls, admin. Checking email occasionally does not count. You do not need a dedicated room for the fixed rate method, but you do need to be able to show the hours.

Method 1: the fixed rate method

You claim a set rate for every hour you work from home. The rate was 70 cents per hour for 2024-25 and 2025-26; check the ATO for the 2026-27 figure. The rate covers electricity and gas, internet, phone, stationery and computer consumables. You cannot claim those items separately on top.

You can still claim, separately, the decline in value of equipment and furniture used for work (desk, chair, computer, monitor), and repairs to them.

Records: a record of actual hours worked from home for the whole income year (a diary, timesheet, or calendar entries; estimates are not accepted) and at least one bill for each type of running expense the rate covers, to show you incurred it.

Example: 900 hours at 70 cents is a $630 deduction, plus depreciation on your desk and computer.

Method 2: the actual cost method

You claim the work-related portion of each actual expense: electricity and gas based on floor area and hours, internet and phone on a usage basis, stationery and consumables in full, cleaning of a dedicated work area, and depreciation of equipment and furniture.

Records: receipts for every expense, a record of hours worked from home for the year or a representative four-week diary, and the basis for each apportionment (floor plan measurements for energy, itemised bills for phone).

The actual cost method takes more effort and usually only wins when you have a dedicated room, high energy or internet costs, and a lot of hours. For most sole traders the fixed rate is simpler and close enough.

Occupancy expenses: rent, mortgage interest, rates

Running costs are one thing; occupancy costs are another. You can only claim a share of rent, mortgage interest, council rates, land tax or home insurance if your home is a place of business: the area is clearly identifiable as a business space, is not readily suitable for private use, is used almost exclusively for business, and is regularly visited by clients or is where the business is run.

A photographer with a converted garage studio where clients come may qualify. A copywriter at the dining table does not.

If you own your home and claim occupancy costs, that portion of the home may lose the main residence exemption from capital gains tax when you sell. Talk to your accountant before claiming occupancy costs; the deduction today can be smaller than the CGT bill later.

Equipment and furniture

Under either method, equipment and furniture are claimed on the business-use percentage. Items under the current instant asset write-off threshold can be deducted in full in the year you start using them; items over it are depreciated. A $2,000 desk setup used 80% for business is a $1,600 deduction.

GST on home office costs

If you are registered for GST you can claim the business portion of the GST on running costs and equipment, using the same percentage. The fixed rate method is an income tax method only; for the BAS you claim actual GST on actual bills at your business percentage.

Keeping the hours

The hours record is the thing most people do not have. A recurring calendar block, a simple time-tracking app, or a note in your bookkeeping software once a week is enough, as long as it is made at the time. FlowFi lets you log working-from-home hours alongside your transactions so the figure is ready at tax time.