Employees working from home: Claiming deductions

With so many Aussies working from home due to the Covid-19 pandemic, the Australian Tax Office (ATO) has extended the working from home shortcut method until 30 June 2022.

Prior to (and following after) the shortcut method, there are two methods to claim work from home deductions, being the fixed rate method (which can alternate with the shortcut method) or the actual cost method.

The simplest of the two methods is the fixed rate method. For each hour you work at home you can claim the fixed rate of 52c. This rate is a proxy for costs of heating, lighting, cooling, cleaning, house furniture depreciation. You can separately deduct the portion of your phone, internet, computer depreciation, and other expenses that are linked to your job. This strategy necessitates the use of a dedicated home office or work area in your home.

Similar to the fixed rate method, under the shortcut method (available only from March 2020 to June 2021), you can claim 80c for each hour you work from home. However, this increased rate of claim encompasses everything! Other work from home expenses such as phone, internet, stationery, and furniture and equipment depreciation cannot be claimed separately when you use the shortcut method.

Essentially the choice on fixed rate or shortcut method boils down to how frequently you use your phone and internet while working from home and the cost of these items, as well as whether or not you have any depreciable equipment.

There are differences in the records to keep under both methods as you need to keep track of your expenses for phone and internet. One of the benefits of the shortcut method is that you only need a timesheet or similar record to claim.

The actual cost method is the more complex of the two methods. This method involves, as the name suggests, that you calculate the actual expenses for items such as depreciation, cleaning, heating, cooling and lighting, phone and internet, and office consumables and stationery. Each of these costs need to be apportioned for the actual usage, each having guidelines on how to calculate this. You will need either the total number of hours worked at home, or a four week diary noting your pattern of working from home. You also need to keep receipts for the expenses incurred. To use the actual cost method, you cannot claim for any areas of the home that are used by members of our household while you are working at home.

So, is the flat rate, shortcut or actual expenses method the best option for you?

To ensure your home office claim is the highest possible, keeping records to allow for calculation of both of the methods discussed will enable us to apply the method that results in the best outcome for you.

As you can see, each method will have a different impact for everyone. If you're unsure what this means for you, reach out to your C&N Advisor to learn more about working from home deductions.

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