Ask any Australian who works from home about tax time and you'll get the same question: should I use the 70¢ fixed rate or claim my actual costs? The answer depends on how you work, what records you keep, and whether you have big-ticket equipment to depreciate. This guide walks through both ATO-approved methods side-by-side, with worked examples for casual and full-time remote workers.
The Two ATO-Approved WFH Methods
For FY2025–26, the ATO accepts exactly two ways to claim home office running costs as a deduction.
| Method | Rate / Calculation | Best for |
|---|---|---|
| Fixed Rate | 70¢ per hour worked from home | Casual WFH, shared spaces, light energy use |
| Actual Cost | Work-related % of each bill, plus depreciation | Full-time remote, dedicated office, premium setup |
You pick one method per income year. You can switch between years, but you can't mix and match within a single tax return.
What Each Method Covers
The fixed rate is a bundle. Once you claim 70¢ per hour, the ATO treats these costs as already covered:
- Electricity and gas (heating, cooling, lighting)
- Internet (home portion)
- Mobile and home phone (decline-in-value portion of usage)
- Stationery and computer consumables (paper, ink, USB sticks)
You cannot also separately claim electricity bills, internet, or phone usage if you've used the fixed rate. Doing so would double-dip and is one of the most common audit triggers.
The actual cost method works the opposite way. You calculate the work-related percentage of each cost individually:
- Electricity: floor area of the work zone vs total floor area, weighted by hours of use
- Internet: hours used for work vs total household use
- Phone: itemised bill review, work calls vs personal
- Heating/cooling: same floor-area-and-hours formula as electricity
Both methods let you separately claim depreciation (decline in value) on equipment over $300 — laptops, monitors, desks, chairs. We'll cover that below.
Records You Need
The fixed rate method has lighter recordkeeping, but it's not record-free.
Fixed rate requires:
- A diary or timesheet showing hours worked from home for the whole income year
- Or, if your pattern is genuinely consistent, a 4-week representative diary that you can apply to the rest of the year
- One bill for each running cost the rate covers (proves you actually pay for electricity, internet etc — but you don't claim them separately)
Actual cost requires:
- Receipts or bills for every claim (electricity, internet, phone, depreciation items)
- A logbook or diary showing the work-vs-private split for each cost
- Floor plan or measurement of your work area if claiming electricity by floor area
- Depreciation schedule for each asset over $300
AusTax AI tip: A 4-week diary only works if your hours are genuinely typical of the year. If you started a new role mid-year, took long leave, or your hours fluctuate seasonally, keep a full-year log instead.
Worked Example 1: Casual WFH Worker
Profile: Marketing assistant, works from the dining room table 2 days a week, 10 hours per week, 48 weeks of the year.
Fixed rate calculation:
- Hours: 10 × 48 = 480 hours
- Deduction: 480 × $0.70 = $336
Actual cost calculation (rough estimate):
- Electricity: dining room is 8% of floor area, used during work hours = ~$45/year
- Internet: 15% work use × $1,200 annual plan = $180
- Phone: 5% work use × $600 = $30
- Subtotal: ~$255
Plus depreciation either way: No big-ticket items, so depreciation is negligible.
Result: Fixed rate wins by ~$80 and avoids the headache of itemised bills, floor-area calculations, and a phone log.
Worked Example 2: Full-Time Remote Worker
Profile: Software engineer, dedicated home office (one full bedroom = 12% of floor area), 40 hours a week, 47 weeks of the year. Premium internet plan, heavy A/C use, $1,800 ultrawide monitor and $1,200 standing desk purchased this year.
Fixed rate calculation:
- Hours: 40 × 47 = 1,880 hours
- Running costs: 1,880 × $0.70 = $1,316
- Plus monitor depreciation (3-year life): $1,800 ÷ 3 = $600
- Plus desk depreciation (4-year life): $1,200 ÷ 4 = $300
- Total: $2,216
Actual cost calculation:
- Electricity: 12% floor area × $3,000 annual bill × 70% time-of-use weighting = $252
- Internet: 80% work use × $1,500 premium plan = $1,200
- Phone: 60% work use × $900 = $540
- Heating/cooling: 12% × $1,500 = $180
- Subtotal running costs: $2,172
- Plus monitor depreciation: $600
- Plus desk depreciation: $300
- Total: $3,072
Result: Actual cost wins by ~$856 — but only because of dedicated room, premium plans, and meticulous records. Drop any one of those and the gap closes fast.
Decision Tree: Which Method Should You Use?
| Your situation | Recommended method |
|---|---|
| Few hours, no dedicated room | Fixed rate |
| 30+ hours/week, dedicated room, heavy energy use | Actual cost (likely) |
| No diary kept | Neither method allowed — start a diary today |
| Big-ticket equipment ($1k+ monitor, ergonomic chair) | Either method, depreciation claimed separately under both |
| Shared dining/living space | Fixed rate (no defensible floor-area claim) |
| Casual job + side hustle from home | Fixed rate (simpler split) |
The single biggest factor is whether you have a dedicated work area. Without one, the actual cost method's floor-area calculations don't hold up under audit.
Depreciation: A Common Misconception
A lot of people think depreciation only applies under the actual cost method. That's wrong. Both methods allow you to separately depreciate equipment costing more than $300, including:
- Laptops and desktops (3-year effective life)
- External monitors (3-year effective life)
- Desks (4-year effective life)
- Office chairs (4-year effective life)
- Printers, scanners, webcams
If the item costs $300 or less, you can deduct the full amount in the year you buy it, again under either method. The only difference: under the fixed rate, you can't also claim the running costs (electricity to power the laptop) — those are already in the 70¢. Under actual cost, you'd add them.
AusTax AI tip: Buying a laptop just before 30 June? You can only claim depreciation for the days you owned it that financial year, calculated daily. A $1,800 laptop bought on 15 June 2026 gives you about $24 in deduction for FY2025–26 — the rest gets spread over the next two years.
Records Checklist
For fixed rate:
- Hours-worked diary or timesheet (full year, or 4-week representative)
- One bill for each running cost the rate covers
- Receipts for any depreciation items over $300
- Asset register if you have multiple depreciating items
For actual cost:
- All electricity bills for the income year
- All internet bills + work-use diary
- All phone bills + itemised work-call log
- Floor-area measurements (photo of plan is fine)
- Heating/cooling bills if claimed separately
- Receipts and depreciation schedule for every asset over $300
- Diary showing daily work hours
Summary
The fixed rate method exists because the ATO knows most home workers don't have time to itemise every bill. At 70¢ per hour, it covers the running-cost basics with a single diary entry. The actual cost method rewards detailed recordkeeping — but only pays off when your home setup genuinely costs more than the fixed rate compensates.
If you tracked hours but didn't keep bills: fixed rate, full stop. If you kept everything and your home office is your main workplace: run both calculations and pick the higher number. And remember — neither method removes the requirement for a diary. Without it, the ATO can disallow the entire deduction at audit.
AusTax AI runs both calculations automatically based on your hours, room layout, and equipment receipts, then flags the better method for your situation. Try it free — no credit card needed.
Need Help Choosing the Right Method?
Fixed rate vs actual cost — the wrong choice can cost you hundreds. a registered tax agent (see the directory)
*Disclaimer: This is general information only and does not constitute personal tax advice. WFH deduction rules are subject to ATO guidance updates. Consult a registered tax agent for advice tailored to your specific work arrangements. Always verify against the latest ATO guidelines at ato.gov.au.*