The specific ATO rules for running and occupancy expenses
The kitchen table, a spare room, a converted garage — for a huge number of Australian small businesses, home is where the work actually happens.
The ATO has specific, structured rules for exactly this situation — and getting them right can make a genuine difference to your deduction.
The short answer
If you're a sole trader or partner running your business from home, you can claim running expenses using either a fixed hourly rate or actual costs, and — only if part of your home genuinely functions as a place of business — occupancy expenses as well. Which combination applies depends on how your home is actually used, not just where you happen to work.
Two categories of expense, and why the distinction matters
| Category | What it covers | Who can claim it |
|---|---|---|
| Running expenses | Electricity, gas, internet, phone, stationery, computer consumables, decline in value of equipment | Any sole trader or partner working from home, regardless of whether there's a dedicated business area |
| Occupancy expenses | Rent, mortgage interest, council rates, home insurance — the cost of holding the home itself | Only if part of the home has the genuine character of a ‘place of business’ |
The fixed rate method
For the 2025–26 income year, the fixed rate is 70 cents per hour worked from home, covering electricity, gas, internet, phone and stationery in one combined rate — you can't claim these individually on top of it. You can, however, separately claim the business-related decline in value of equipment like a laptop or office furniture.
You need a record of every hour worked from home across the full year — a timesheet, roster or diary kept as you go. A representative four-week sample is no longer accepted.
The actual cost method
Rather than a flat rate, you claim the genuine work-related portion of your actual running costs, based on floor area and time used for business. This usually produces a larger deduction if your running costs are significant, but demands considerably more detailed record-keeping to support the calculation.
When occupancy expenses come into play
This is the part that catches many home-based business owners out. Occupancy expenses — rent, mortgage interest, rates, insurance — are only claimable if part of your home has the genuine character of a place of business: clearly identifiable as such, not readily suitable for private use, and used almost exclusively for the business. A spare room that doubles as a guest room on weekends generally won't qualify; a dedicated space with its own client entrance — a home hair salon is the ATO's own example — typically will.
Claiming occupancy expenses can also affect the main residence capital gains tax exemption when you eventually sell your home — a trade-off worth understanding before claiming, not after.
A simple example
A bookkeeper works from a spare bedroom, which also occasionally hosts overnight guests. She can claim running expenses — either the 70 cents per hour rate or actual costs — for the hours she genuinely works there. Because the room isn't used exclusively for business, she generally can't claim occupancy expenses like a share of her rent.
A quick self-check
Am I keeping a genuine, full-year record of hours worked from home, not an estimate?
Does any part of my home genuinely meet the ‘place of business’ test, or is it a shared-use space?
Have I compared the fixed rate and actual cost methods to see which produces a better outcome?
If I might claim occupancy expenses, have I considered the CGT implication before doing so?
Free official resource
The ATO sets out the full rules for home-based business expenses, including the current fixed rate and the place-of-business test.
ato.gov.au — Home-based business expenses https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/income-and-deductions-for-business/deductions/deductions-for-home-based-business-expenses/home-based-business-expenses-sole-trader-or-partnership
When should you get professional help?
you're not sure whether part of your home genuinely meets the place-of-business test;
you want to compare the fixed rate and actual cost methods properly for your situation;
you're considering claiming occupancy expenses and want the CGT implications explained first; or
your business operates as a company or trust, which has different rules again for home-based costs.
Continue learning
→ What Business Expenses Can I Claim as a Tax Deduction?
→ Business Expense or Personal Expense — Where Is the Line?
→ What Is Depreciation — and Why Can't I Always Claim an Asset Immediately?
SKC Accounting | Knowledge Centre | Knowledge Guide 056
Last reviewed: August 2026
General information only. This guide does not take into account your individual circumstances and is not a substitute for professional accounting, taxation, legal or financial advice.