The Fine Print Australia · PUBLISHED 27 JUN 2026 · VERIFIED 27 JUN 2026 · AU EDITION

ATO Working From Home Rules 2025-26: The $1,400 You Could Lose 🇦🇺

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An employee working from home full‑time who fails ATO’s new record‑keeping test can lose over $1,400 in tax deductions in a single year (2,000 hours × $0.70 fixed rate) simply because they didn’t keep a compliant log of hours worked from home.

The number that matters

$0.70 per hour — that’s the ATO’s fixed rate per work hour for claiming working‑from‑home running expenses in the 2025–26 income year, covering electricity, gas, internet, phone, stationery and computer consumables for each hour you substantively work from home.

How it quietly costs you

Mechanism: “Substantive work” + extra costs + strict records — or no deduction

From 2025–26, the ATO will only allow working‑from‑home deductions if all three conditions are met:

• You perform employment duties from home, not just “minimal tasks” like occasionally checking emails or taking calls.
• You incur additional running expenses because you work from home (for example, higher electricity, gas or internet usage).
• You have records to substantiate your claim (hours worked, bills, receipts).

To use the fixed rate method in 2025–26, you must:

• Keep a record of every hour worked from home for the entire income year — estimates and assumptions are no longer accepted.
• Keep evidence of expenses, such as at least one bill or invoice for electricity, gas, internet or phone that shows you actually incurred the types of costs covered by the rate.
• Keep receipts/records for depreciating assets (computers, monitors, office chairs, desks) if you claim their decline in value separately.

If any part fails — for example, you only kept a rough estimate of hours, or most of your time at home was just checking emails — the ATO can disallow the entire working‑from‑home claim.

Quantified impact (2025–26)

• Under the fixed rate method, a full‑time worker from home (approx. 40 hours per week × 50 weeks = 2,000 hours) could claim: [ 2,000 \text{ hours} \times <mark class=“fig”>$0.70 = <mark class=“fig”>$1,400 ] as a deduction for running expenses.
• If their records don’t satisfy the ATO’s requirements, that $1,400 deduction drops to $0. At a marginal tax rate of 32.5%, that is roughly $455 in extra tax payable on that income (illustrative; tax rates set by Treasury and ATO tables, not directly in WFH rules).

Old vs better comparison

• Old shortcut method (pre‑1 July 2022): 80c/hour but with much looser record‑keeping (a four‑week diary could be used to estimate hours for the year).
• Revised fixed rate (from 1 July 2024 into 2025–26): 70c/hour but requires actual hours for the full year, plus evidence of expenses.

So while the per‑hour rate is now lower than the old 80c method, the rules are much stricter — meaning many people who were previously “guestimating” their hours are now at risk of losing the deduction entirely if they don’t change behavior.

The second, compounding trap

Mechanism: Double‑counting and private use — ATO is denying “inflated” claims

Even when people do keep records, the ATO is warning against claiming private or double‑counted costs as work deductions:

You cannot claim:

• Coffee, tea, milk or general household items, even if your employer provides them at work.
• Ordinary clothes and general personal expenses.
• Any items your employer provides (for example, a company‑owned laptop or mobile phone).
• Costs your employer reimburses you for.

Under the fixed rate method:

• The $0.70 per hour rate already covers electricity, gas, phone, internet, stationery and computer consumables.
• You cannot separately deduct these same running costs again — any additional claim for those items is double‑counting and will be disallowed.

Under the actual cost method, you must apportion every bill between work and private use and can only claim the work‑related portion.

• The ATO specifically warns that you must exclude private use like “kids using all your downloads or streaming services” when apportioning internet costs.

Quantified long‑run cost of “getting it wrong”

Scenario: A worker incorrectly double‑claims internet and phone on top of the fixed rate, and the ATO later adjusts their returns for four years.

• Suppose they work 1,500 hours per year from home using the fixed rate method: [ 1,500 \times <mark class=“fig”>$0.70 = <mark class=“fig”>$1,050 \text{ deduction per year} ]
• On top of that, they wrongly claim $600 per year of extra “internet and phone” deductions, which are already included in the fixed rate.
• If the ATO reviews and disallows the extra $600 for four years, that’s: [ <mark class=“fig”>$600 \times 4 = <mark class=“fig”>$2,400 ] of disallowed deductions.
• At a 32.5% marginal tax rate, that equates to roughly $780 in additional tax, potentially plus interest charges (interest rates set by ATO’s general interest charge, not specified in WFH guidance).

If the ATO also decides that the person’s “work from home” was not substantive (for example, mostly checking emails), they could disallow the entire ATO fixed rate claim — turning an expected $4,200 in deductions over four years (4 × $1,050) into $0, further increasing tax payable.

What this looks like in practice

Persona

• Name: Jess
• Age: 34
• Job: Marketing manager (employee)
• Gross income: $110,000 per year (taxable employment income; typical for a mid‑career professional)
• Work pattern: 3 days per week from home, 8 hours per day ≈ 24 hours per week
• Annual hours from home: roughly 24 × 48 weeks = 1,152 hours (allowing for leave).
• Home setup: Uses a spare bedroom as a home office, owns her own laptop and monitor, and pays for the household’s electricity, gas and NBN internet.
• Retirement horizon: About 31 years to age 65.

Discovery 1 — Her “rough estimate” diary makes the entire claim non‑compliant

Jess assumed she could estimate that she worked “about 1,200 hours” from home and kept only a three‑month diary.

When she reads the ATO rules, she discovers:

• She must keep a record of all hours worked from home for the entire income year — a short diary or estimate is no longer accepted.
• If she wants to claim the fixed rate, her deduction should be: [ 1,152 \text{ hours} \times <mark class=“fig”>$0.70 = <mark class=“fig”>$806.40 ] for 2025–26.
• Without full‑year records of hours worked, the ATO could disallow the entire $806.40 deduction.

Discovery 2 — Her “extra” internet claim is double‑counting $300

Jess has been claiming the fixed rate and an extra $300 per year for internet costs on her tax return.

Under the revised fixed rate method:

• The $0.70 per hour already covers internet and phone.
• She can only separately claim expenses not covered by the fixed rate, such as the decline in value of her laptop or office chair.

Corrected position for 2025–26:

• She should claim:
• Fixed rate: 1,152 hours × $0.70 = $806.40
• Plus, for example, $250 decline in value of her office equipment (based on actual cost and ATO depreciation rules; illustrative).
• Her previous extra $300 internet deduction is non‑compliant and could be removed on review, cutting her deduction by $300 per year.

Discovery 3 — Actual cost could be worth an extra ~$200 per year if she does the work

Jess calculates whether switching to the actual cost method would give a higher deduction.

Using a representative 4‑week diary of usage, she finds:

• Home office occupies 10% of floor area and is used almost exclusively for work during business hours.
• She works from home 60% of standard working days (3 out of 5).
• She pays $2,000 per year on electricity and gas, and $1,200 per year on internet.

She reasonably apportion these costs for work:

• Electricity + gas: 10% floor area × 60% workdays ≈ 6% work‑related portion of $2,000 = $120 per year.
• Internet: estimates 50% of usage is for work (rest family/streaming), so $1,200 × 50% = $600 work‑related.
• Phone: Separate mobile plan $600/year, with 50% for work → $300 deductible.

Under the actual cost method, she could claim approximately:

• Running expenses: $120 + $600 + $300 = $1,020
• Plus the same $250 decline in value of equipment = $1,270 total.

Versus fixed rate plus equipment:

• Fixed rate: $806.40
• Equipment: $250
• Total fixed‑rate approach: $1,056.40

So switching to actual cost could increase her deduction by around $213.60 per year (illustrative, based on ATO apportionment rules).

The full cost of doing nothing

Using Jess’s numbers, we can see how failing records + double‑counting quietly add up over a career.

Baseline: Doing it right with the method that suits her

If Jess uses the actual cost method properly and maintains records:

• Annual deduction ≈ $1,270 (from the example above).

Over 31 years to retirement:

• [ <mark class=“fig”>$1,270 \times 31 = <mark class=“fig”>$39,370 ] in total deductions from working‑from‑home expenses (nominal, not adjusted for inflation).

Problem 1 impact: No compliant hours log

If she continues with estimates and the ATO disallows her working‑from‑home deduction:

• She loses $1,056.40 per year she would have claimed under the simpler fixed‑rate method (fixed rate + equipment).
• Over 31 years, that’s: [ <mark class=“fig”>$1,056.40 \times 31 \approx <mark class=“fig”>$32,748.40 ] of lost deductions.

Problem 2 impact: Double‑claiming internet/phone then being corrected

If, on top of that, she wrongly claims $300 per year of extra internet/phone outside the fixed rate and the ATO later removes it:

• That’s $300 × 31 = $9,300 of deductions that she thought she had but will never keep if reviewed.

Combined headline number

Across her 31‑year career, the combined effect of:

• Not keeping compliant hour records (losing the core WFH deduction)
• Mis‑claiming extra internet/phone deductions that are later disallowed

could realistically mean a difference of around $40,000 in total working‑from‑home deductions between “doing it properly” and “doing it wrong”, based on the illustrative modelling above.

Assumptions:

• Jess maintains similar working‑from‑home patterns and cost structure for 31 years.
• ATO rules and the fixed rate remain broadly similar (the rate and policy can change — the current 70c rate applies from 1 July 2024 into 2025–26).

What to do about it

1. Log your hours in real time using ATO‑compliant records

1. Action: Start capturing every hour worked from home for the full income year.
2. Tool/portal: Use a digital timesheet, spreadsheet, work roster, diary, or the ATO app to record hours, ensuring it shows dates and start/finish times for home‑based work.
3. Steps:

• Each day you work from home, record your start and end times and breaks.
• At month‑end, total your hours worked from home and save/export the record.
• At year‑end, confirm the total hours and store the file with your tax records and a backup copy.

4. What “good” looks like: A complete, contemporaneous log for the full 2025–26 year that shows all hours worked from home — not estimates, and not just a short sample period — ready to support a fixed‑rate claim of hours × $0.70.

2. Collect and apportion your bills before choosing fixed vs actual cost

1. Action: Download your electricity, gas, internet and phone bills and calculate your genuine work‑related portion before deciding whether to use the fixed rate or actual cost method.
2. Tool/portal: Use your ATO online account via myGov together with the ATO’s online guidance on working‑from‑home expenses, which explains apportionment rules and the two methods.
3. Steps:

• Gather 12 months of bills for electricity, gas, internet and mobile/home phone.
• Measure your home office area and note your typical weekly work‑from‑home pattern; keep a 4‑week representative diary of usage for mixed‑use items (phone, internet) to establish work vs private percentages.
• Calculate your work‑related percentages and compare the total deductible amount under the actual cost method with the simpler fixed rate (hours × $0.70) plus equipment decline‑in‑value to see which is higher and worth the record‑keeping burden.

4. What “good” looks like: A documented calculation showing either:

• Fixed‑rate deduction: total hours × $0.70 plus separate decline‑in‑value for equipment,
• or actual‑cost deduction: a higher or comparable amount with clearly justified apportionment percentages and bill totals, all supported by records.

3. Audit your claim for private expenses and double‑counting

1. Action: Review your past and planned WFH claims to strip out private expenses and any costs already covered by the fixed rate.
2. Tool/portal: Use the ATO’s “Working from home expenses” guidance alongside your MyTax or tax agent records for the 2025–26 “Other work‑related expenses” section.
3. Steps:

• List each WFH expense you intend to claim (electricity, gas, internet, phone, stationery, computer consumables, equipment, etc.).
• If you use the fixed rate, delete any separate claim for electricity, gas, internet, phone, stationery or computer consumables — they are already covered by the $0.70 per hour rate.
• Remove non‑deductible items (coffee, ordinary clothes, employer‑provided or reimbursed equipment), so only work‑related and unreimbursed costs remain.

4. What “good” looks like: A cleaned‑up deduction schedule where:

• Fixed‑rate users only claim hours × $0.70 plus decline‑in‑value for eligible equipment.
• Actual‑cost users only claim the work‑related portion of mixed‑use items, with clear apportionment and no private or double‑claimed expenses.[6

Sources

• https://www.ato.gov.au/individuals-and-families/income-deductions-offsets-and-records/deductions-you-can-claim/work-related-deductions/working-from-home-expenses
• https://www.ato.gov.au/individuals-and-families/your-tax-return/instructions-to-complete-your-tax-return/mytax-instructions/2026/deductions/work-related-expenses/other-work-related-expenses

Researched 2026-06-27.

Corrections & disclosure: an AI-assisted, human-reviewed guide. Every figure is dated and sourced above. Spot something out of date or wrong? Tell us and we’ll correct it — corrections are noted here and in the video description.