Home Office Expenses (Australia) 2025 Guide

Home office expenses are deductible for Australian business owners only to the extent the costs are incurred in earning assessable income, are not private or domestic, and can be substantiated with records—and the ATO draws a sharp line between (1) running expenses of working from home (often deductible) and (2) occupancy expenses (deductible only in limited “place of business” cases). This distinction is critical because wrongly claiming occupancy costs (or over-claiming mixed-use costs) is a common ATO audit focus for sole traders, companies with director-shareholders, and trusts.

What counts as “home office expenses” for business owners?

Home office expenses are expenses connected with using a home to carry on business activities, and they are split into two categories under ATO guidance.

• Running expenses (commonly claimable): Costs of operating the home office while you work (for example, electricity, internet, phone, consumables, and depreciation of equipment).
• Occupancy expenses (limited claimability): Costs of owning or renting the home (for example, rent, mortgage interest, council rates, and house insurance).

ATO guidance consistently applies the general deduction rule in section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997): deductions are allowed to the extent incurred in gaining assessable income, but not to the extent they are private/domestic or capital.

What home office expenses are allowed (deductible) for business owners?

Allowed claims generally fall into running expenses, plus depreciation for business assets, and some work-related portion of communications and consumables.

Which “running expenses” are typically deductible?

1. You incurred the cost, and
2. The cost relates to business use, and
3. Your apportionment is reasonable and supported by records.

Common deductible running expenses include:

• Electricity and gas (work-related portion): Lighting, heating/cooling in the work area while working.
• Internet and mobile phone (work-related portion): Based on a usage methodology (for example, a representative period).
• Stationery and consumables: Printer ink, paper, postage used for business.
• Cleaning (incremental): Only to the extent cleaning costs increase due to the business area use (often minor unless a dedicated area is maintained).
• Decline in value (depreciation) of equipment: Computer, monitor, printer, tools/equipment used in the business.
• Repairs to equipment: Fixing business equipment (not the home itself).

• ATO guidance on working from home deductions (running expenses and record-keeping expectations).
• TR 93/30 (home office expenses and the principles around running vs occupancy and “place of business” indicators).
• General deduction rule: ITAA 1997 s 8-1.

Are computers, monitors, and office furniture deductible?

• Immediate deduction vs depreciation: Depending on the entity type, cost, and the applicable rules in that income year. In practice, most assets are depreciated unless a specific immediate deduction rule applies.
• Apportionment: If private use exists, only claim the business-use portion.

It should be noted that the ATO expects a rational basis for business-use percentages (for example, a 4-week representative usage pattern, device logs, or a diary).

What home office expenses are not allowed (or are high-risk)?

Not allowed (or commonly disallowed) claims are generally private, capital, or not sufficiently connected to earning income.

Which claims are commonly denied by the ATO?

• Occupancy costs when your home is not a “place of business”: Claiming rent/mortgage interest merely because you sometimes work from home is usually not permitted.
• Private portions of utilities and internet: Claiming 100% without a reasonable basis is a common adjustment.
• Capital improvements to the home: Renovations, extensions, and structural changes are capital in nature (not deductible under s 8-1; may form part of CGT cost base).
• General household costs unrelated to working: Groceries, general home décor, normal household furnishings, or non-business subscriptions.
• Travel from home to regular workplace: Generally private in nature (separate issue, but often incorrectly bundled into “home office” thinking).

ATO audit behaviour is particularly sensitive to “blanket claims” with no diary, no calculations, and no evidence of hours worked.

When can a business owner claim “occupancy expenses” for a home office?

Occupancy expenses are only deductible where the relevant area of the home has the character of a place of business (not merely a convenient workspace). This is a fact-and-evidence test drawn from ATO guidance and TR 93/30 principles.

How do you determine if it’s a “place of business”?

A “place of business” is more likely where factors such as the following apply (the more factors satisfied, the stronger the position):

• The area is clearly identifiable as a business area (physically set aside).
• The area is not readily suitable for private use (for example, fitted-out consulting room, workshop).
• The area is used exclusively or almost exclusively for business.
• Clients/customers attend the premises (where relevant).
• The home is used as a base of operations (for example, no other business premises and the business is run from there).

If these indicators are not met (for example, working at a laptop on the dining table, or using a spare bedroom that doubles as a guest room), occupancy claims are typically not sustainable.

What occupancy expenses might be claimable if it is a “place of business”?

Where the place-of-business test is satisfied, typical occupancy expenses include:

• Rent (tenants): Business portion based on floor area and time used (where relevant).
• Mortgage interest (owners): Business portion (high CGT risk—see below).
• Council rates and water rates: Business portion.
• Building insurance: Business portion.

• Floor area calculations (home floor plan or measured area).
• Usage evidence (exclusive use and business nature).
• How the percentage was calculated.

How do you calculate home office deductions correctly (without triggering ATO issues)?

• Running expenses only, or
• Running + occupancy (place of business).

What are accepted apportionment methods for running expenses?

Reasonable approaches include:

• Electricity/gas:

• Internet and phone:

• Depreciation of equipment:

What should you do if you have mixed-use rooms?

• If a room is a guest room and office, the ATO will expect the claim to reflect non-exclusive use.
• Exclusive use strengthens the deduction position, but it must be genuine and supportable.

What are the record-keeping requirements (and what will the ATO ask for)?

• The expense was incurred (tax invoices/receipts/bills),
• The expense relates to business activity, and
• The basis of apportionment is reasonable.

What records should be kept in practice?

For robust workpapers, retain:

• Utility bills: Electricity, gas, internet, phone.
• Diary of hours worked from home: Preferably contemporaneous; at minimum, a representative period that reflects typical work patterns.
• Floor area measurement evidence: If claiming occupancy or cleaning based on area.
• Asset purchase invoices: Computer, desk, chair, printer, etc.
• Depreciation schedule: Showing effective life method and business-use apportionment.
• Written methodology: A clear explanation of how you calculated the claim.

According to ATO guidance, contemporaneous records are strongly preferred; retrospective estimates without evidence are inherently audit-exposed.

What are the CGT consequences if you claim occupancy expenses?

Claiming occupancy expenses for a home you own can create capital gains tax implications by affecting the main residence exemption. This is a major strategic issue that must be considered before lodging.

When does CGT risk arise?

• Part of the home is treated as a place of business, and
• You claim occupancy expenses such as mortgage interest, rates, or building insurance for that part.

In practical terms, many owner-occupier business owners intentionally do not claim occupancy expenses to avoid a future CGT outcome, even if technically available.

Professional practice note: The CGT analysis is fact-specific and must be documented. Consideration must be given to the main residence rules in ITAA 1997 (including the main residence exemption provisions) and the client’s future intentions regarding sale timing.

What are real-world examples of what’s allowed vs not allowed?

Example 1: Sole trader consultant using a spare bedroom (mixed use)

• Allowed: Work-related portion of internet, phone, electricity for hours worked, stationery, depreciation of laptop/monitor.
• Not allowed (usually): Rent/mortgage interest and rates (unless the room is clearly a place of business and not used privately).

Risk point: claiming 30% of rent because “the room is 30% of the house” when the room is also used for guests is commonly unsustainable.

Example 2: Physiotherapist running appointments from a fitted-out room at home

• Allowed: Running expenses plus occupancy expenses, because client attendance and business fit-out support a place-of-business position.
• Also required: Strong records of floor area, exclusive use, and business operation evidence.

Example 3: Company director working from home two days per week

• If the individual incurs expenses: They may claim work-related running expenses (subject to substantiation).
• If the company reimburses: Reimbursement and any related FBT implications must be considered (a separate analysis is required).
• Occupancy expenses: Still generally not available unless place-of-business indicators exist.

How does “home office expenses” interact with GST for business owners?

• Whether the business is registered for GST, and
• Whether tax invoices are held, and
• Whether the acquisition is creditable and for a creditable purpose.

• GST credits may be available on business-use portions of expenses that include GST (for example, internet, office supplies).
• No GST credit is generally available on items that are input taxed or don’t include GST (case-specific).

It is established practice to align the GST credit claim with the income tax apportionment methodology, with adjustments where GST law differs.

How does MyLedger help automate home office expense substantiation for BAS and year-end?

For Australian practices, the operational problem is not knowing the rule—it is capturing evidence, apportioning correctly, and reconciling consistently across BAS, accounts, and year-end workpapers.

MyLedger (by Fedix) is positioned as an AI accounting software Australia solution that automates the heavy-lift around transaction coding and workpaper-ready outputs:

• Automated bank reconciliation: MyLedger AutoRecon reduces reconciliation time by around 90% (10–15 minutes vs 3–4 hours) per client, which materially improves the ability to review home office-related transactions carefully rather than rushing coding at BAS time.
• AI-powered reconciliation and coding consistency: Helps standardise treatment of internet/phone/utilities across periods and entities, reducing rework at year-end.
• Automated working papers: Supports a cleaner pathway to year-end substantiation (especially where practices traditionally rely on manual Excel).
• ATO integration accounting software (practice workflow): MyLedger’s ATO integration capabilities support compliance workflows and due-date visibility, which reduces last-minute lodgment pressure that often causes incorrect claims.

Next Steps (Fedix)

If your practice is looking to reduce adjustment risk and improve profitability on compliance work, consider standardising your home office substantiation workflow and embedding it into reconciliation.

• Review your current process: Where are diaries stored, how are percentages calculated, and how are claims reviewed?
• Implement consistent coding rules and workpaper templates across clients.
• Learn more about how Fedix and MyLedger can help automate bank reconciliation and produce workpaper-ready outputs faster, so senior staff spend time showing judgement (what’s allowed vs not) rather than re-keying and re-checking.

• Automated BAS reconciliation software workflows for Australian practices
• Division 7A automation and common ATO risk areas
• Best practice record-keeping systems for substantiation (ATO audit readiness)

Frequently Asked Questions

Q: Can a business owner claim rent or mortgage interest for working from home?

Q: What is the ATO’s main test for home office deductions?

Q: Do I need a dedicated room to claim home office expenses?

Q: What records should I keep to support home office claims?

Q: Will claiming occupancy expenses affect CGT when I sell my home?

Disclaimer: This material is general information for Australian accounting and tax context as of December 2025 and does not constitute legal or tax advice. Tax outcomes depend on each client’s facts, entity type, and record-keeping. Professional advice should be obtained for specific circumstances, and ATO guidance and legislation should be checked for updates.