WFH Tax Deduction 2025-26: Fixed Rate vs Actual Cost (Which Gets You More Money)

If you worked from home at all this financial year, you have a choice at tax time. The ATO offers two methods to claim work-from-home expenses, and the one that gives you the bigger refund depends entirely on your specific circumstances. Get it wrong and you can leave hundreds of dollars on the table — or trigger an ATO review.

• Fixed rate method: $0.70 per hour worked from home (for the 2025-26 income year). Covers electricity, gas, internet, phone, stationery and consumables. Simple records.
• Actual cost method: Calculate the real work-use portion of each expense. Add work-only items like office furniture depreciation and stationery. Higher substantiation burden.

This guide walks through both, with worked examples for typical Australian WFH patterns. Use the FWM WFH Tax Deduction Calculator to see which method gets you the bigger refund based on your actual hours and expenses.

The fixed rate is published under ATO PCG 2023/1 (extended to 2024-25 and 2025-26). At $0.70 per hour of work from home, it represents the ATO's blended average cost of:

• Electricity and gas
• Internet
• Phone (mobile or landline)
• Stationery and computer consumables

You cannot claim these items separately on top of the fixed rate. But you CAN still separately claim other work-related items:

• Depreciation on office furniture and equipment (chairs, desks, monitors) where each item is over $300, or immediate write-off where it's $300 or less
• Cleaning of your dedicated home office area
• Repairs and maintenance of work equipment

Records you must keep: a contemporaneous record of every WFH hour. Timesheets, a roster, a diary, or any reliable evidence will do — but the ATO has explicitly said it will not accept estimates like "I work from home about 30 hours a week." You need actual hours.

Worked example. Sarah works from home 25 hours per week for 48 weeks of the year (excluding leave). Her fixed rate deduction: 25 × 48 × $0.70 = $840. At her 30% marginal tax rate, that's a tax refund of $252.

The actual cost method requires you to calculate the real work-use portion of every shared household expense, plus add work-only items in full. The substantiation burden is materially higher: you need receipts for every expense, a four-week representative diary showing how each item was used for work, and a depreciation schedule for any furniture or equipment over $300.

The actual cost method usually wins when:

• You have a high-value home office setup with depreciable furniture
• Your work-use of internet or phone is unusually high (e.g., heavy video conferencing)
• You bought a lot of work-only stationery, equipment, or consumables this year
• Your WFH hours are low but your fixed expenses (electricity, internet) are high

Worked example. James worked from home 10 hours per week for 48 weeks. Fixed rate: 10 × 48 × $0.70 = $336.

His actual cost method: annual electricity $1,800, internet $1,200, mobile $720. Apportioned at work-use of 10/112 (his weekly hours over total household waking hours): $328. Plus $400 stationery + $800 depreciation on a new ergonomic chair and monitor stand. Total: $1,528. At James's 37% marginal rate, that's $565 in tax refund — versus $124 if he'd taken the fixed rate. Actual cost wins by $441.

Some employees believe a WFH claim lets them claim a portion of their rent or mortgage. It does not — and trying can backfire.

The line is between running expenses (electricity, internet, phone) and occupancy expenses (rent, mortgage interest, council rates, home insurance). Running expenses are claimable on a work-use basis. Occupancy expenses are only claimable if your home is a genuine "place of business" — meaning you run a business there with a dedicated client-facing space, clear signage, separate phone, and clients visiting regularly. For 99% of employees who work from home as a convenience, occupancy expenses are not deductible.

Worse, if you do successfully claim occupancy expenses, your home loses some or all of its main residence Capital Gains Tax exemption. That can cost you hundreds of thousands of dollars when you sell. Almost never worth it.

The ATO has been clear about what it will accept for each method.

Fixed rate method:

• A diary, timesheet, or roster showing actual WFH hours throughout the year
• At least one receipt for each category of expense the rate covers (to prove you actually incurred costs)
• Records for any separately-claimed items (depreciation schedule for furniture, receipts for cleaning, etc.)

Actual cost method:

• Receipts or invoices for every expense claimed (electricity bills, internet plan, phone plan, stationery, equipment)
• A four-week representative diary showing your work-use pattern for shared items
• A floor plan or method to calculate the work-use portion of household running costs
• A depreciation schedule for office furniture and equipment over $300

The ATO's record-keeping requirement is five years from the date you lodge your tax return. Save digital copies of everything to cloud storage — the days of shoeboxes of paper receipts are over.

The honest answer for most office-based knowledge workers who WFH 2-3 days a week with no major home-office investments: the fixed rate wins and saves you hours of admin.

For tradies who turned a garage into a workshop, sales reps who bought a separate work-only mobile, or anyone who spent $1,000+ on furniture this year: actual cost almost always wins.

You don't have to decide now. Keep records for both methods through the year, then pick the winner at tax time. Use the FWM WFH Tax Deduction Calculator in July — it shows both methods side-by-side and recommends the winner based on your exact numbers.

From the 2026-27 income year (1 July 2026 onwards), you'll have a third option: the new $1,000 instant work deduction announced in the Federal Budget 2026-27. If your total work-related expenses (including WFH) are under $1,000, the instant deduction will probably beat itemising entirely. Model that with the Instant Work Deduction Estimator.