Working-from-home deductions have quietly become one of the riskiest claims in the Australian tax system, and it is not because the rule is complex. It is because most people misapply it in one of a few predictable ways, and the ATO has named work-related deductions, with working-from-home claims squarely inside them, as a compliance focus every tax time since 2022. For the 2025-26 income year the fixed-rate method sits at 70 cents per hour, and used correctly it is genuinely useful, turning a fiddly calculation into one hourly figure. Used carelessly, it produces a claim that is either inflated and vulnerable to adjustment or understated so the client pays more tax than they need to. For a firm working through client returns this time of year, the value is in getting the method, the records, and the traps right the first time.
What the 70c rate covers, and what you claim on top
The fixed-rate method lets a client claim 70 cents for every hour worked from home during 2025-26, and the important thing to understand is that the rate is a bundle. It already covers the additional running expenses of working from home, specifically energy for heating, cooling and lighting the work area, internet and data, mobile and home phone usage, and stationery and computer consumables. Because those are baked into the rate, a client using the fixed-rate method cannot also claim any of them separately, and doing so, claiming the 70c rate and then adding the internet bill on top, is double-dipping and one of the ATO's top WFH audit triggers. What can be claimed separately, on top of the fixed rate, is the decline in value of equipment used for work, the desk, chair, monitor, or laptop, along with repairs to those assets and the cleaning of a dedicated home office. Equipment costing $300 or less can generally be claimed in full in the year of purchase, while items over that are depreciated over their effective life. So a correct fixed-rate claim usually has two parts: the hourly-rate calculation, plus separate depreciation on equipment. Missing that second part is how clients quietly understate their claim.
The alternative is the actual cost method, which works out the genuine work-related portion of every individual expense based on real usage rather than a flat rate. It is more work, requiring every bill and a defensible basis for apportioning each one between work and private use, but for a client with genuinely high running costs, a dedicated home office, heavy equipment, or full-time work-from-home, it can produce a meaningfully larger deduction. The choice between the two is a real one worth running both ways for higher-usage clients: the fixed rate wins on simplicity and audit-defensibility for the typical hybrid worker doing a few days a week, while actual cost can pay off for the concentrated, high-cost case, provided the records are there to support it.
The record-keeping bar that trips most people up
The single biggest change over recent years, and the one that catches clients out, is that the ATO no longer accepts estimates or a representative sample for the fixed-rate method. To claim it, a client must have a record of the actual number of hours worked from home across the entire income year, kept contemporaneously, as the hours occur, not reconstructed at tax time. A timesheet, roster, diary, calendar, or the ATO's own myDeductions app all qualify, but a four-week sample extrapolated across the year, which used to be acceptable, no longer is. This matters in a very concrete way: if a client only started keeping a proper log partway through the year, only the hours from the period they actually recorded can be claimed, and the estimated earlier months are lost. Alongside the hours, the client also needs at least one bill for each expense category the rate covers, to show the running costs were genuinely incurred, even though the fixed rate means those bills are not itemised into the claim. The practical message to give clients now is to keep the log going from 1 July, because a reconstructed diary will not survive an ATO review, and the hours are the foundation the whole claim rests on.
The mistakes the ATO is actively looking for
Beyond double-dipping and missing hours records, a handful of errors show up on the ATO's radar every year and are worth checking on every return. The first is failing to apportion shared items for private use, claiming 100% of an internet plan when a family is streaming and gaming on the same connection, when the claim has to reflect genuine work use. The second is claiming occupancy expenses, which for employees means rent, mortgage interest, council rates, and home insurance, and these are generally not deductible for an employee simply because they work from home. Only a taxpayer genuinely running a business from home can consider occupancy costs, and even then only for the business-use portion, and claiming a share of mortgage interest can also jeopardise the main-residence CGT exemption, so it is a claim to approach with real caution. The third is claiming expenses the employer has already reimbursed or provided, such as a work phone or a paid internet bill, which cannot then also be claimed. And a timing reminder worth heading off with clients: the new $1,000 standard work-related deduction that needs no receipts applies from the 2026-27 income year, so it does not apply to the 2025-26 returns being lodged now, and a client trying to use it early is making exactly the kind of error the ATO is watching for. Across all of these, the pattern is the same one that runs through the ATO's whole focus this year: the claim itself may be fine, but it is only as strong as the records and the apportionment behind it, and a WFH deduction checked properly before lodgement is one less thing to explain in a review afterwards.
