Topic: Work-from-home tax tips: remote work deductions and employer obligations

Last reviewed: 17/12/2025

Focus: Accounting Practice Analysis

Work-from-home tax tips 2025: AU deductions & duties

Work-from-home tax tips for Australia in 2025 centre on two non-negotiables: (1) employees and contractors may only claim remote work deductions to the extent they incur additional costs in earning assessable income and can substantiate those costs, and (2) employers must manage payroll, superannuation, and FBT exposures while maintaining compliant records and policies for hybrid and remote arrangements. The ATO has made it clear that shortcut-style claims are not acceptable without records, and that apportionment is required where an expense has both private and work use.

Featured Answer: Work-from-home deductions in Australia generally cover the running expenses of a home office (for example, electricity, internet and phone), plus depreciation or work-related decline in value for eligible equipment, but claims must be based on actual work use and supported by evidence (such as diary records and invoices). Employers must also manage PAYG withholding, super guarantee, potential FBT outcomes for equipment and reimbursements, and WHS and recordkeeping duties—ideally under a formal remote work policy aligned to ATO guidance.

What are the key work-from-home tax rules in Australia (2025)?

The key rule is that a deduction is only available where an expense is incurred in gaining or producing assessable income, is not capital/private/domestic in nature, and is properly substantiated. This principle is established under Australian income tax law, including section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997).

Whether the taxpayer genuinely worked from home while earning income
Whether the expense was actually incurred by the taxpayer (not reimbursed)
Whether the claim is calculated using an acceptable method with appropriate records
Whether private use has been excluded through reasonable apportionment

ATO guidance on working from home deductions (including the fixed rate method and recordkeeping expectations)
ATO Practical compliance guidance and examples on apportionment and substantiation
ITAA 1997 section 8-1 (general deductions)
Fringe Benefits Tax Assessment Act 1986 (FBTAA) for employer-provided benefits

Disclaimer for practitioners: Tax law and ATO administrative guidance can change. Advice should be tailored to each client’s facts, and positions should be confirmed against the ATO’s current published guidance for the relevant income year.

What can employees claim as work-from-home deductions?

Employees can generally claim additional “running expenses” and certain work-related equipment costs to the extent of their work-related use, provided they paid for the expense and were not reimbursed.

Which running expenses are commonly deductible?

Running expenses are typically the primary category for remote work deductions.

Electricity and gas (lighting, heating/cooling) attributable to work use
Internet expenses (work-related portion)
Mobile phone and landline expenses (work-related portion)
Consumables directly related to work (for example, printer ink and paper)
Decline in value (depreciation) for eligible office equipment used for work (for example, monitors, printers)

It should be noted that occupancy expenses (such as rent, mortgage interest, council rates) are usually not deductible for employees merely because they work from home. They are only relevant in limited circumstances where part of the home has the character of a place of business, which is fact-dependent and generally uncommon for standard employees.

What about equipment like laptops, monitors and chairs?

Equipment is generally deductible based on work-related use, but the timing and method depend on whether the cost is capital in nature and whether immediate deduction rules apply in the taxpayer’s circumstances.

If the equipment is used partly for private purposes (for example, family/shared computer), the claim must be reduced.
Evidence should include tax invoices/receipts, and a reasonable basis for work-use percentage.

How do the ATO’s work-from-home calculation methods work?

The ATO accepts specific calculation approaches for home office running expenses, and the correct method depends on the client’s facts and records.

What is the fixed rate method and when is it appropriate?

The fixed rate method is a simplified method the ATO allows for calculating home office running expenses, but it is not “no records required.” A record of hours worked from home is required, and separate claims may still be needed for some items depending on ATO guidance for the year.

The client’s primary WFH costs are utilities, phone and internet, and small consumables
The client has reliable timesheets, rosters, diary entries, or system logs evidencing WFH hours
The client wants a lower-complexity approach that remains defensible on review

What is the actual cost method and when is it better?

The actual cost method calculates the work-related portion of each expense based on evidence and a reasonable apportionment basis.

The client has high internet/phone usage for work (for example, client-facing professionals)
The client purchased and used significant equipment requiring depreciation schedules
The client can maintain strong records and a consistent apportionment approach

Internet: Work use supported by a representative 4-week diary or router usage reports, extrapolated reasonably.
Phone: Itemised bills and a 4-week diary separating work vs private calls/data.
Electricity: ATO-accepted approaches usually rely on fixed rate hours or a reasonable cost allocation methodology supported by evidence.

Professional note: Regardless of method, double-dipping must be prevented. If the fixed rate is used for certain running costs, those same costs should not also be claimed separately unless the ATO guidance for the relevant year explicitly permits it for a specific category.

What records does the ATO require for remote work deductions?

The expense (for example, invoices, receipts, bills)
The work-related use (for example, diary of hours, usage logs, reasonable calculations)

Rounded amounts (for example, “$1,000 WFH”)
No diary or logbook evidence
No invoices or bills
Identical claims year-on-year despite changed work patterns

A record of hours worked from home across the year (or a representative period accepted by the ATO for the method used)
Internet and phone bills, plus a usage basis (diary or itemisation)
Receipts for consumables and equipment
Depreciation/decline in value calculations where applicable
Evidence of employer requirements or arrangement (for example, contract, HR policy, roster) to support that WFH occurred in earning income

What are common mistakes that trigger ATO adjustments?

The most common errors arise from misunderstanding apportionment, claiming private costs, or failing substantiation.

Claiming occupancy costs (rent, mortgage interest) without a genuine “place of business” basis
Claiming equipment in full where it is partly private use
Claiming expenses that were reimbursed by the employer (no deduction available to the employee)
Using estimates without supporting evidence (no diary, no bills)
“Double counting” the same expenses under more than one method

A salaried employee claims a large internet deduction but has no bills and no usage diary. The ATO disallows most of the claim and may impose penalties where recklessness is indicated. A defensible approach would have been to retain invoices and keep a 4-week representative usage diary.

What obligations do employers have for remote work arrangements?

Employers have obligations across payroll, superannuation, FBT, and governance. The tax exposure often arises not from the employee’s deduction, but from how the employer funds or provides remote work tools.

PAYG withholding continues to be applied correctly to salary and wages
Superannuation guarantee (SG) obligations are met on ordinary time earnings (subject to current law and definitions)
Salary packaging arrangements, if offered, are administered correctly

Reimbursement: Generally an employer pays back exact or approximate costs incurred; may have different tax and FBT consequences than an allowance.
Allowance: Generally paid regardless of actual spend; typically assessable to the employee and may require PAYG withholding, with the employee then claiming deductions if eligible.

When does FBT apply to work-from-home benefits?

FBT may apply where employers provide benefits to employees (for example, paying for home internet, providing equipment, or reimbursing certain private components), unless an exemption applies.

Whether the benefit is primarily for work use
Whether the item is an “otherwise deductible” expense to the employee (a central concept in FBT analysis)
Whether any specific FBT exemptions apply (for example, certain work-related items), noting exemptions are condition-based and documentation-heavy

Fringe Benefits Tax Assessment Act 1986 (FBTAA), including recordkeeping and “otherwise deductible” concepts where applicable.

Professional note: FBT outcomes can differ materially depending on whether the employer provides an item, reimburses an expense, or pays an allowance. Documentation should be designed so the “business use” position is supportable.

What policies should employers implement to reduce tax and compliance risk?

A compliant remote work policy should exist to evidence business purpose and reduce disputes.

Eligible roles and approval processes for remote work
What equipment is provided vs what is reimbursed vs what is not supported
Evidence requirements for reimbursements (invoices, declarations, usage percentages)
Expectations for recordkeeping (to support employee deductions where relevant)
Cybersecurity and privacy controls (client data handling is critical for accounting practices)
WHS expectations and workstation safety declarations (WHS is not an ATO matter but is a governance must-have)

How should accounting practices advise clients (employees and employers) in 2025?

The most defensible advice is to align each client’s claim or employer treatment to ATO-published methods, ensure consistent apportionment logic, and insist on evidence before lodging.

Confirm WFH pattern (days per week, months in the year)
Choose a method (fixed rate or actual cost) based on records and materiality
Collect bills: electricity (if relevant), internet, phone
Obtain equipment receipts and confirm work-use percentage
Maintain WFH hours evidence (diary, roster, system logins)
Confirm no reimbursement was received (or adjust claim accordingly)

Classify payments correctly (reimbursement vs allowance)
Maintain reimbursement evidence (invoices, declarations, approval workflow)
Review FBT exposures on employer-provided items and services
Confirm payroll treatment and PAYG withholding settings
Ensure a written remote work policy exists and is followed

An employer pays a flat “WFH allowance” without requiring evidence and treats it as non-taxable. This is high risk. A compliant approach is to treat allowances as taxable (with withholding), or restructure as reimbursements with evidence, and manage any FBT consequences appropriately.

How can automation reduce WFH deduction and compliance risk for practices?

Automation reduces risk by standardising evidence collection, apportionment logic, and reconciliation between payroll, reimbursements, and tax outcomes.

Collecting receipts and logs at scale
Preventing double claims across methods
Ensuring reimbursements/allowances align with payroll, STP reporting, and FBT positions
Reconciliations and year-end workpaper completeness

This is where AI accounting software Australia solutions can materially improve consistency and audit defensibility by systemising document capture, transaction categorisation, and workpaper generation.

How Fedix can help (practical next steps)

Fedix, through MyLedger, is designed to reduce manual compliance effort for Australian accounting practices by automating the evidence-to-reporting workflow.

Automating transaction categorisation and speeding up reconciliations (10–15 minutes per client vs 3–4 hours in traditional workflows, approximately 90% faster)
Producing structured workpapers and reconciliation outputs that make substantiation easier to evidence
Supporting ATO-aligned compliance processes through consistent data capture and review workflows

Standardise your WFH deduction evidence checklist (employee clients and employer clients).
Review employer allowance vs reimbursement arrangements for payroll, PAYG withholding, and FBT risk.
Implement an automation-first workflow in Fedix/MyLedger to reduce rework and improve audit readiness.

AI-powered reconciliation for BAS reconciliation software workflows
ATO integration accounting software benefits for compliance teams
Practice automation strategies to handle more clients without additional headcount

Frequently Asked Questions

Q: Can an employee claim rent or mortgage interest when working from home?

Generally, no—rent and mortgage interest are typically private/occupancy costs and are not deductible for employees merely because they work from home. A deduction may only arise in limited circumstances where part of the home is genuinely used as a place of business, which is uncommon and requires careful factual analysis consistent with ATO guidance and section 8-1 ITAA 1997 principles.

Q: What evidence does the ATO expect for work-from-home hours?

The ATO expects a record of hours worked from home, such as a diary, roster, timesheets, or system login reports. The exact form depends on the method used, but the consistent requirement is that hours are verifiable and contemporaneous.

Q: If my employer pays me a work-from-home allowance, can I still claim deductions?

Often, yes—allowances are generally assessable income and do not prevent a deduction, provided the employee actually incurred the expense and has records. However, the correct tax treatment depends on whether the payment is an allowance or a reimbursement, and whether the employer has already covered the cost.

Q: Do employers have to pay FBT on laptops or monitors provided for remote work?

Not automatically. The FBT position depends on the type of benefit, the extent of work-related use, and whether an exemption applies under the FBTAA. Employers should document business use and maintain supporting records to substantiate any FBT-exempt or “otherwise deductible” position.

Q: What is the biggest compliance risk with work-from-home deductions in 2025?

The biggest risk is poor substantiation—claims without diary/hour evidence and invoices, or claims that do not reasonably apportion private and work use. In practice, this is the most common driver of ATO adjustments.

Conclusion

Work-from-home deductions in Australia remain legitimate and valuable in 2025, but only where expenses are genuinely work-related, appropriately apportioned, and supported by records in line with ATO guidance and the general deduction rules in section 8-1 ITAA 1997. For employers, the compliance focus is on properly classifying allowances and reimbursements, managing PAYG withholding and SG, and controlling FBT risk under the FBTAA.

Disclaimer: This information is general in nature and does not constitute tax advice. Tax outcomes depend on individual circumstances, and ATO guidance and legislation may change. Professional advice should be obtained for specific situations.