Working From Home Deductions: How the Methods Differ

Working from home is now ordinary for a large share of the workforce, and the deduction rules have been rewritten several times to keep up. The consequence is that a lot of people are still following a method that applied in an earlier year, or keeping the records that method required rather than the ones now expected.

Two broad approaches exist. One applies a fixed rate per hour worked from home, intended to cover a defined bundle of running costs. The other calculates actual expenses and apportions them to work use. The ATO publishes the current rate, exactly which costs the fixed rate is taken to cover, and the records each method requires.

The part that catches people out

Under the fixed-rate approach, the rate covers a specified set of running expenses. Claiming those same items separately on top of the rate is double-counting, and it is one of the more common errors. Which items are inside the rate and which sit outside it has changed between versions of the rules, so the current list matters more than the remembered one.

The other frequent problem is the record of hours. The expectation has moved toward a record of the actual hours worked from home across the year, kept as you go, rather than a representative four-week diary extrapolated across twelve months. A reconstructed estimate produced after year end is materially weaker than a contemporaneous record.

What the actual-cost method involves

Calculating actual expenses can produce a larger deduction where home-based work is substantial, but it asks considerably more of the taxpayer. It requires evidence of the expenses themselves and a defensible basis for the work-related proportion of each — which for something like electricity means a reasoned apportionment rather than a round percentage.

• Bills and receipts for the expenses being apportioned.
• A basis for the work-use proportion that can be explained, not simply asserted.
• A record of hours or usage supporting that proportion.
• For assets used partly for work, a record of cost and of the private-use split.

Equipment is treated separately from running costs

Desks, chairs, monitors and computers are not running expenses and are not covered by an hourly rate. They are assets, and the treatment depends on cost and on effective life — lower-cost items may be written off immediately, while more expensive ones are generally deducted over time.

Where an item is used partly for private purposes, only the work-related proportion is deductible, and that proportion needs a basis. A laptop used for work and for everything else at home is the standard example, and a percentage picked because it sounds reasonable is exactly the kind of figure that gets tested.

If more than one person works from the same home

Two people working from the same house each claim on their own circumstances, based on their own hours and their own use. The household’s bills do not get claimed twice, and the apportionment has to reflect what each person actually used rather than splitting the total in half for convenience.

What is not deductible

Occupancy expenses — rent, mortgage interest, rates, house insurance — are generally not deductible for employees simply because work is done at home. There are narrow circumstances where the position differs, and they carry consequences of their own, including potential capital gains implications for part of a main residence. This is an area where a claim made casually can be expensive later.

Employees and business owners are not in the same position

Most of the above concerns employees. A business operating from a home base is in a different position again, with different treatment of running and occupancy costs and different record-keeping. Where that is the situation, it is handled as part of the business’s ordinary accounts under bookkeeping and financial reporting rather than as a personal deduction question.