Home Office Tax Deductions: Fixed Rate vs Actual Cost for Freelancers

Most Australian freelancers work from home at least part of the time, and a portion of your running costs (electricity, internet, phone) are legitimate tax deductions. You can almost certainly claim something. The real question is which method gives you the bigger deduction.

The ATO offers two approaches: the fixed rate method (67 cents per hour) and the actual cost method (calculating real expenses). Each has trade-offs in terms of effort, record-keeping, and the final dollar amount you can claim.

The fixed rate method: 67 cents per hour

This is the simpler option. For every hour you work from home, you claim 67 cents as a deduction. The rate is set by the ATO and covers:

• Electricity and gas for heating, cooling, and lighting
• Phone usage (mobile and landline)
• Internet
• Stationery and computer consumables

You don't need to track individual bills. The only record you need is the hours you worked from home. A timesheet, calendar, time-tracking app, or even diary entries work.

What it covers

The 67c rate is meant to represent the average additional running cost of working from home. It doesn't cover everything. Specifically, it does not include:

• Decline in value (depreciation) of office furniture and equipment
• Repairs to office furniture and equipment
• Cleaning expenses for your home office

You can claim these separately on top of the 67c/hour rate. So if you bought a $1,500 desk and a $2,000 monitor, you claim those as separate equipment deductions in addition to the hourly rate.

Worked example

You work from home 5 days a week, averaging 7 hours per day, for 48 weeks of the year (allowing for holidays and sick days).

Total hours: 5 × 7 × 48 = 1,680 hours

Home office deduction: 1,680 × $0.67 = $1,125.60

Plus separately claimed:

• Desk depreciation: $300 (over 5 years for a $1,500 desk)
• Monitor: $2,000 (instant asset write-off, 90% work use = $1,800)

Total home office claim: $3,225.60

At a 32% marginal rate (including Medicare Levy), that's $1,032 back in your pocket at tax time. Worth putting straight into your tax savings account.

The actual cost method

The detailed option. Instead of using a flat rate, you calculate the real costs of running your home office and claim the work-related portion.

You'll need to track actual bills for:

• Electricity: the proportion used for your office
• Gas: if you use gas heating in your office
• Internet: the work-related percentage
• Phone: the work-related percentage of calls and data
• Cleaning: the proportion related to your office
• Depreciation: decline in value of all office furniture and equipment
• Repairs and maintenance for office furniture and equipment

How to calculate the work-related portion

You need a reasonable basis for splitting costs between work and personal use. The most common approach:

For electricity/gas: Floor area of your office ÷ total floor area of your home × hours of work use ÷ total hours in the period

Example: Your office is 12 square metres in a 100 square metre home (12%). You work from the office 40 hours per week out of a total 168 hours. Work portion: 12% × (40/168) = 2.86% of your electricity bill.

That might seem tiny. But electricity for running computers, monitors, lights, and climate control in a small office adds up faster than you'd expect. Many accountants use a simplified calculation based on floor area alone (12% in this case) because the ATO accepts reasonable estimates.

For internet: Estimate the work percentage. If you work from home full-time and your internet is $90/month, claiming 60-70% for work use is reasonable. That's $54-63/month or $648-756/year.

For phone: Keep a 4-week diary of calls and data usage to establish a work percentage. If 75% of your phone use is work-related and your plan is $65/month, that's $48.75/month or $585/year.

When actual cost wins

The actual cost method tends to give a larger deduction when:

• You have a dedicated office space (not a corner of the kitchen table)
• Your running costs are high (large home, expensive electricity, high-speed internet)
• You've purchased significant office equipment
• You work long hours from home

When fixed rate wins

The fixed rate method often wins (or comes close enough) when:

• Your office is a small part of a small home
• You have average running costs
• You don't want to track bills and calculate percentages
• The 67c rate combined with separate equipment claims gets you close to actual cost anyway

Head-to-head comparison

Which method wins depends on your setup. The comparison below uses a typical freelance developer working from home in Sydney.

The setup:

• 12sqm office in a 95sqm apartment (12.6% floor area)
• Works from home 5 days/week, ~7 hours/day, 48 weeks/year
• Electricity: $2,400/year
• Internet: $110/month ($1,320/year)
• Phone: $65/month ($780/year), 70% work use
• Desk + chair: $2,500 (depreciated over 10 years = $250/year)
• Monitor: $800 (instant write-off, 90% work use)

Fixed rate method

Actual cost method

At a 32% marginal rate, that's an extra $186 in tax savings. Whether that's worth the extra record-keeping effort is a personal call. For many freelancers, the fixed rate is "close enough", especially when you factor in the time spent tracking bills and calculating percentages.

What you can't claim

Regardless of which method you use, some home expenses are off-limits:

Occupancy expenses

Rent, mortgage interest, property insurance, and land rates are not claimable under either method for most freelancers. These are "occupancy expenses" and only available if you have a room set aside exclusively as a place of business. Even then, claiming them can trigger capital gains tax when you sell your home (your main residence exemption may be partially reduced).

For the vast majority of freelancers working from a home office, the risk of losing your CGT exemption is not worth the deduction. Stick to running expenses.

Furniture and items for the rest of the house

Your office deduction covers your office. The new couch, the kitchen renovation, and the garden shed don't count, even if clients occasionally see them on video calls.

Costs already covered by the fixed rate

If you use the 67c/hour method, you cannot also separately claim electricity, internet, or phone expenses. Those are already included in the rate. You can only separately claim items the rate doesn't cover (depreciation, repairs, cleaning).

Record-keeping requirements

For the fixed rate method

Keep a record of hours worked from home. Acceptable records include:

• Timesheets or time-tracking apps (Toggl, Clockify, Harvest)
• Calendar entries showing work hours
• Diary or log entries
• Rosters or schedules

You need to record actual hours, not just a reasonable estimate. "I usually work 7 hours" isn't enough. You need records showing when you worked.

For the actual cost method

Keep all of the above, plus:

• Electricity and gas bills for the full year
• Internet and phone bills for the full year
• Receipts for any office equipment, furniture, or repairs
• Your floor area calculation (measure once and keep the record)
• Your 4-week phone diary establishing work-use percentage

All records must be kept for 5 years from the date you lodge your return. If you're tracking actual costs quarterly, you'll want this organised before each BAS lodgement.

Frequently asked questions

Can I claim home office and a coworking space?

Yes. Home office deduction for hours at home, coworking membership as a separate business expense. Just don't double-count: no 67c/hour claim for hours spent at the coworking space.

What if I work from the kitchen table?

You can still claim the fixed rate method even without a dedicated office. As long as you're working from home, the 67c/hour rate applies. However, the actual cost method is harder to justify without a defined workspace, because the floor-area calculation doesn't work well for shared spaces.

Can I switch methods between years?

Yes. You can't use both in the same financial year, but you can switch between years. Run both calculations once to see which gives you more, then commit for the year.

Do I need to own the home?

No. Renters can claim home office deductions using either method. You just can't claim the rent itself (that's an occupancy expense). Running costs like electricity, internet, and phone are claimable regardless of whether you own or rent.

My partner also works from home. Can we both claim?

Yes. Each person claims their own hours and their own portion of expenses. Using fixed rate, you each track your own hours. Using actual costs, you each claim a reasonable share of the bills based on your respective work hours and space. You can't both claim 100% of the internet bill.