Short Answer: Which Method Is Better?
It depends on your actual costs. For most WFH employees, the fixed rate method (70c/hour) is simpler and often gives the same or better result — especially if you're a part-time remote worker with modest expenses. The actual cost method wins when you have high dedicated home office costs (e.g., a separate room with high electricity usage, expensive equipment depreciation, or a dedicated work internet plan).
How Each Method Works
Fixed Rate Method (70c/Hour)
The ATO's revised fixed rate for FY2025-26 is 70 cents per work hour. This flat rate covers:
- Energy (electricity and gas)
- Internet
- Mobile and home phone
- Stationery and computer consumables (ink, paper)
What you still need: A timesheet or diary recording hours worked from home. You do not need receipts for the items the rate covers, but you do need records of your hours.
Actual Cost Method
You calculate the actual running costs of your home office and claim the work-related proportion:
What you need: Receipts, bills, and a reasonable basis for apportionment (floor plan, usage diary).
According to the ATO: "You can choose the fixed rate method or the actual cost method — whichever gives you the better outcome. But you must be able to substantiate your claims." (ATO guidelines)
Comparison Table
| Factor | Fixed Rate (70c/hr) | Actual Cost |
|---|---|---|
| Calculation | Hours x $0.70 | Actual bills x work-use % |
| Records needed | Timesheet/diary | All receipts, bills, usage log |
| Covers | Energy, internet, phone, stationery | Everything (proportional) |
| Equipment depreciation | Claimed separately | Included |
| Best for | Part-time WFH, modest costs | High home office costs, dedicated room |
| Audit risk | Lower (simpler records) | Higher (more complex substantiation) |
Worked Example: Sarah's 2025-26 Tax Return
Sarah works from home 3 days/week (24 hours/week, 48 weeks/year = 1,152 hours). She earns $90,000. Her home office expenses are:
- Electricity: $2,400/year (office = 15% of floor area)
- Internet: $960/year
- Phone: $720/year
- Depreciation on desk/chair/monitor: $450/year
- Stationery: $180/year
Fixed rate method:
1,152 hours x $0.70 = $806.40 deduction
Plus desk/chair/monitor depreciation claimed separately: +$450 = $1,256.40 total
Tax saved (30% bracket): $377
Actual cost method:
Electricity 15%: $360 + Internet 30%: $288 + Phone 30%: $216 + Depreciation: $450 + Stationery: $180 = $1,494 total
Tax saved (30% bracket): $448
Winner: Actual cost — saves Sarah an extra $71 in tax.
Worked Example: Tom's 2025-26 Tax Return
Tom works from home 2 days/week (16 hours/week, 48 weeks = 768 hours). He earns $40,000. His only extra cost is $600/year extra electricity (WFH adds roughly $600 to his bill).
Fixed rate method:
768 hours x $0.70 = $537.60 deduction
Tax saved (16% bracket): $86
Actual cost method:
$600 extra electricity = $600 deduction
Tax saved (16% bracket): $96
Winner: Actual cost — saves Tom $10 more, but with extra record-keeping effort.
How to Decide (Decision Framework)
Ask yourself:
Common Mistakes
- Claiming fixed rate AND actual costs for the same items (double-dipping)
- Claiming 100% of internet/phone without calculating work-use percentage
- Forgetting you can claim equipment depreciation separately under fixed rate
- Not keeping a timesheet — the ATO can disallow your entire claim without it
Quick Checklist
- Track all WFH hours (timesheet, diary, or calendar)
- Calculate deduction under BOTH methods before choosing
- Keep receipts for items not covered by fixed rate (equipment)
- Keep all bills and usage records if using actual cost
- Claim the method that gives you the higher deduction
- Don't mix methods for the same expense categories
Still Not Sure Which Method Is Right for You?
a registered tax agent (see the directory) Still unsure?.
*Disclaimer: This is general information only and does not constitute tax advice. Individual circumstances vary. Consult a registered tax agent for personalised advice.*