Working from home can come with additional costs, but not every home office expense is tax deductible. In particular, the ATO has found that some taxpayers are incorrectly claiming occupancy expenses, such as rent and mortgage interest, as part of their working from home deductions.
Understanding the difference between running expenses and occupancy expenses is important to ensure you claim the right deductions and keep the appropriate records.
What are running expenses and occupancy expenses?
Running expenses are additional costs you incur because you work from home. These can include:
- Heating, cooling and lighting
- Internet and data expenses
- Phone costs
- Stationery
- Computer consumables
- The decline in value of office furniture or equipment not provided by your employer
You generally can’t claim expenses that have been reimbursed by your employer.
Occupancy expenses, on the other hand, are costs associated with owning or renting your home. These can include:
- Mortgage interest
- Rent
- Council and water rates
- Land tax
- House insurance premiums
The rules for claiming these expenses are different, and occupancy expenses are generally much more difficult for employees to claim.
Can employees claim working from home expenses?
Employees can generally claim eligible running expenses when working from home if they:
- Work from home to perform their substantive employment duties, rather than simply answering occasional emails or phone calls
- Incur additional expenses as a result of working from home
- Keep appropriate records to support their claim
There are two methods available for calculating working from home deductions.
Fixed rate method
For the 2025–26 income year, the fixed rate is 70 cents per hour worked from home.
The fixed rate covers expenses such as:
- Energy
- Internet
- Phone usage
- Stationery
- Computer consumables
You can generally make separate claims for the decline in value of eligible depreciating assets, such as office furniture, computers and other work-related equipment.
Actual cost method
The actual cost method allows you to claim the work-related portion of your actual additional expenses.
You need records showing the hours you worked from home, such as timesheets, rosters or a diary showing a representative four-week pattern. You also need detailed records of the expenses you incurred and how you calculated the work-related portion.
Can employees claim occupancy expenses?
Occupancy expenses are rarely deductible for employees.
Generally, to claim expenses such as rent or mortgage interest, you need to demonstrate that your home work area has the character of a place of business.
This may apply where:
- The nature of your income-earning activities requires a place of business
- Your employer does not provide another suitable work location
- The workspace is used exclusively or almost exclusively for work
A home workspace may have the character of a place of business where it:
- Is clearly identifiable as a business area
- Is not readily suitable for private or domestic use
- Is used regularly for work
- Is used for client or customer visits, where relevant
Simply working from home because your employer allows or requires it does not necessarily mean you can claim occupancy expenses.
How are occupancy expenses calculated?
If you are eligible to claim occupancy expenses, you need to apportion the expenses between private and work-related use and claim only the work-related portion.
The calculation will generally take into account:
- The floor area used for work
- The period the area was used for work during the income year
- Your ownership interest in the property or your share of the rent, where the property is jointly owned or the rent is shared
You should keep records supporting your calculation, such as:
- Mortgage interest statements
- Rental receipts
- Council and water rate notices
- House insurance documents
- A floor plan showing the work area
Could there be capital gains tax consequences?
There can be capital gains tax (CGT) consequences when part of your home is used as a place of business.
If your home was acquired after 20 September 1985 and part of it is used as a place of business, you may lose part of the main residence exemption when you eventually sell the property.
Importantly, this potential CGT consequence can apply even if you don’t claim all the occupancy expenses available to you.
For this reason, it is important to consider the longer-term tax implications before claiming occupancy expenses.
Get professional advice on working from home deductions
Working from home deductions can be relatively straightforward when it comes to eligible running expenses.
However, occupancy expense claims are more restricted and may have longer-term tax consequences, particularly where your home is treated as a place of business.
If you’re unsure about whether you can claim rent, mortgage interest or other occupancy expenses, speak to an appropriate professional advisor before lodging your tax return.
Your advisor will be able to determine which working from home expenses you may be entitled to claim, and ensure your deductions are accurately calculated and properly supported by appropriate records.
Published 28 August 2026