Fixed rate vs actual cost: which WFH deduction method is right for you?

Important disclaimer

The information in this article is general in nature and should not be considered financial or taxation advice. Everyone’s circumstances are different, and tax laws can be complex. We strongly recommend consulting with a qualified accountant or registered tax agent who can provide advice tailored to your specific situation. WFH Logbook Australia is a record-keeping tool and does not provide tax or financial advice.

Understanding your options

Australian workers who work from home need to decide which WFH deduction method to use. There are two approaches for claiming WFH expenses.

Which one you choose can significantly impact both your tax return and the effort required to support your claim. Here’s the key point: while you don’t need to formally choose your method at the start of the year, each method requires different substantiation, so you should begin keeping the right type of records as early as possible. Reconstructed or estimated records made long after the fact will not satisfy ATO requirements.

Let’s break down each method, explore their pros and cons, and help you determine which approach makes the most sense for your circumstances.

The fixed-rate method

The fixed-rate method is the simpler of the two options. You can claim 70 cents per hour for each hour you work from home for the 2024–25 income year. (A rate of 67 cents per hour applied for the 2022–23 and 2023–24 income years. Always use the rate for the year you are claiming.)

What’s included in the rate

The fixed-rate cover common running expenses, including:

• Energy costs (electricity and gas for heating, cooling, and lighting)
• Internet expenses
• Mobile and home phone usage
• Stationery and computer consumables
• The general decline in value (depreciation) of office furniture and equipment ordinarily used for WFH

Because these items are built into the hourly rate, you cannot also claim them separately as this would amount to ” double-dipping”.

What you can claim separately

You can still separately claim decline in value (depreciation) and repairs/maintenance for assets where the cost or depreciation is not already covered by the hourly rate, and cleaning for a dedicated home office provided you have the supporting records. The ATO lists decline in value, repairs and cleaning as separate possible claims.

Record-keeping requirements

The ATO requires contemporaneous records of the hours you actually worked from home during the income year (for example, timesheets, roster or employer system logs, or a regularly updated diary). You should also keep at least one bill or invoice (for example an internet or phone bill) to show you incurred the types of running expenses the hourly rate is intended to cover.

The actual-cost method

The actual-cost method allows claiming the work-related portion of your WFH expenses. However, this requires considerably more effort but might deliver larger deductions if you have significant home office expenses or work from home extensively.

How it works

This method involves calculating the actual cost of each WFH-related expense and then determining the work-related proportion. For shared expenses (such as electricity or Internet), you must use a reasonable basis to apportion work versus private use. Examples include:

• Floor area calculations (for a dedicated office room)
• Usage-based calculations (e.g., work hours vs total hours for electricity)
• Data usage or time-based apportionment for internet and phone

These calculations can become complex and require supporting evidence.

What you can claim

The actual-cost method allows you to claim the work related portion of:

• Electricity and gas
• Internet and phone costs
• Depreciation of office furniture and equipment
• Depreciation of computers and laptops
• Repairs and maintenance
• Stationery and supplies
• Cleaning costs for your work space
• Other expenses directly incurred in working from home

Record-keeping requirements

This method requires comprehensive documentation, including:

• Records of actual hours worked from home. In some circumstances, a representative 28-day diary may be used to establish a reliable pattern for the year but only if clearly representative
• Receipts and invoices for all expenses claimed
• Utility bills and usage evidence
• Apportionment calculations, showing how you determined the work-related portion
• Floor-area measurements if using an area-based method

Comparing the methods side by side

Fixed-rate method:

• Pros: Simple calculation, minimal paperwork, covers most common expenses in one rate, no need to track individual bills
• Cons: Requires consistent logging; may understate deductions for high-cost households

Actual-cost method:

• Pros: May deliver higher deductions in specific situations (dedicated home offices with very high expenses), reflects your actual costs
• Cons: Complex apportionment, high record-keeping load, receipts needed for everything, higher risk of errors

When the fixed-rate method makes sense

The fixed-rate method is ideal if you:

• Work from home occasionally, part-time, or even full-time
• Want to avoid the complexity of tracking and apportioning every expense
• Prefer simplicity and want to minimise paperwork
• Share expenses like internet and electricity with your household
• Don’t want to deal with complex area calculations and usage formulas

The fixed-rate method is designed to be broadly representative of typical running costs, and for many workers it delivers deductions that are comparable to what they’d receive under the actual-cost method.

When the actual-cost method makes sense

The actual-cost method is worth considering when you have genuinely exceptional expenses. It might suit you if you:

• Have a dedicated home office room and high associated costs
• Have recently purchased substantial office furniture or equipment (which can be depreciated)
• Are comfortable with detailed record keeping and complex calculations
• Have the time and inclination to maintain comprehensive documentation year-round
• Have confirmed the extra work will genuinely deliver a meaningfully higher deduction

Before committing to this method, it’s worth doing the math to see if the additional effort is justified by a significantly larger deduction.

The ATO’s guidance on choosing

The ATO allows you to choose whichever method best suits your circumstances each income year. You may change methods from year to year. The important point is that your claim must be genuine, correctly calculated, and supported by contemporaneous records.

The ATO is particularly focused on ensuring taxpayers using the fixed-rate method maintain proper logs rather than estimates or recreated summaries.

Can you mix methods?

You cannot combine the fixed-rate and actual-cost methods within the same financial year. You must choose one or the other for each year’s tax return.

Making your decision

Here’s a practical approach to choosing:

1. Estimate your hours: Calculate roughly how many hours you’ll work from home this year
2. Do the fixed-rate math: Multiply those hours by $0.70 to see your potential deduction
3. Add up actual costs: If you’re considering the actual-cost method, gather your bills and calculate the work-related portions
4. Compare the results: Which method delivers a better outcome?
5. Consider the effort: Is the extra deduction from the actual-cost method worth the additional paperwork?

The role of WFH Logbook Australia

Whichever method you choose, you’ll need to maintain records of your actual hours worked from home. WFH Logbook Australia makes this requirement effortless by providing timestamped, contemporaneous records that back up your claim.

For fixed-rate users, the app automatically calculates your deduction as you log hours throughout the year. For actual-cost users, the app provides the crucial hours worked documentation you’ll need alongside your receipts and bills.

Final thoughts

There is no universally better method. The best option depends entirely on your expenses, working patterns, and your willingness to keep detailed records. The fixed-rate method delivers simplicity and practicality for most people, while the actual-cost method can produce higher deductions for those with dedicated workspaces and substantial costs.

Whatever you decide, start keeping proper records now. Good documentation is the key to ensuring your claim is accurate, compliant, and stress free at tax time.