For the 2025–26 financial year, the Australian Taxation Office (ATO) continues to offer two primary methodologies for claiming work-from-home (WFH) deductions: the Fixed Rate Method and the Actual Cost Method. Choosing between them requires a cost-benefit analysis of your household expenses versus your record-keeping capacity.
Table of Contents
The Fixed Rate Method: 70 Cents of Streamlined Compliance
The Fixed Rate Method is a simplified accounting approach that allows taxpayers to claim a set rate for each hour worked from home. For the 2025–26 period, this rate is 70 cents per hour.
Coverage: This hourly rate is an all-in figure representing additional running costs, specifically electricity, gas, home and mobile phone usage, data/internet, and stationery or computer consumables.
Excluded Claims: Because these costs are baked into the 70-cent rate, you cannot claim them separately. However, you can still claim the decline in value (depreciation) of office furniture and technology (e.g., a MacBook) as a separate deduction.
Strict Record-Keeping: To utilize this method, you must maintain a contemporaneous record of all hours worked, such as a timesheet, logbook, or diary, for the entire year. Estimates are strictly prohibited by the ATO.
The Actual Cost Method: Granular Deduction Strategy
The Actual Cost Method allows for the deduction of specific, work-related portions of incurred expenses. This is often the preferred route for power users or those with high overhead costs that exceed the standard 70-cent threshold.
Eligibility: While a dedicated home office isn’t mandatory for the Fixed Rate Method, the Actual Cost Method generally requires a dedicated work area to accurately apportion costs like cleaning or lighting.
Calculations: You must calculate the actual cost per unit of power for appliances or the work-related percentage of phone and internet bills.
Documentation: This method carries a high administrative burden, requiring receipts for all purchases and a four-week representative diary to justify work-related usage percentages.
Comparative Analysis: Choosing Your Method
| Feature | Fixed Rate Method (2026) | Actual Cost Method |
|---|---|---|
| Current Rate | 70 cents per hour | Variable (Actual costs) |
| Primary Records | Log of all actual hours | Receipts and usage diaries |
| Infrastructure | No dedicated office needed | Dedicated space recommended |
| Best For | Low-overhead employees | High utility users/Home-based businesses |
Example Calculation of depreciation for a High-Value Asset
For a professional workstation costing more than $300, the Australian Taxation Office (ATO) requires you to claim the decline in value over its effective life. Unlike running expenses, depreciation is a separate claim you can make regardless of whether you use the Fixed Rate or Actual Cost method.
Key Concepts for 2025–26
Asset Threshold: Items costing $300 or less can be claimed as an immediate deduction. Items over $300 must be depreciated.
Effective Life: This is the period the ATO expects the asset to last. For a professional workstation (computer), the standard effective life is typically 4 years.
Taxable Use Percentage: You can only claim the portion of the depreciation that relates to your work. If you use your workstation 80% for work and 20% for personal gaming, you can only claim 80% of the calculated depreciation.
Taxpayers generally choose between two primary methods to calculate this decline in value:
1. Prime Cost Method (Straight Line):
The Logic: Assumes the asset’s value decreases by the same amount every year.
Formula: Cost × (Days Held / 365) × (100% / Effective Life) × Taxable Use %.
Best For: Stability and simplicity in your tax planning.
2. Diminishing Value Method:
The Logic: Front-loads the deduction, claiming more in the early years when the asset is newest.
Formula: Base Value × (Days Held / 365) × (200% / Effective Life) × Taxable Use %.
Best For: Maximising immediate tax relief, especially for fast-depreciating tech.
2026 Comparison Table: $4,000 Workstation
Assuming a $4,000 workstation, a 4-year effective life, and 100% work use for the full year.
| Year | Prime Cost (Fixed) | Diminishing Value (Accelerated) |
|---|---|---|
| Year 1 | $1,000 | $2,000 |
| Year 2 | $1,000 | $1,000 (Remaining value $2,000 × 50%) |
| Year 3 | $1,000 | $500 (Remaining value $1,000 × 50%) |
| Year 4 | $1,000 | $250 (Remaining value $500 × 50%) |
Low-Value Pooling Alternative
If your asset’s value falls below $1,000 (either at purchase or after a few years of depreciation), you can choose to allocate it to a Low-Value Pool. This allows for a simplified 37.5% annual deduction (18.75% in the first year) using a diminishing value rate.
To ensure compliance with ATO Record-Keeping Standards, you must keep the original invoice and a record of how you determined your work-use percentage.
Frequently Asked Questions
Can I switch methods between financial years?
Yes. You can choose the method that provides the highest deduction each year. For instance, you might use the Fixed Rate Method in a year with low utility costs and switch to the Actual Cost Method in a year where you have high energy consumption or extensive mobile phone usage.
Do I need a dedicated home office to use the Fixed Rate Method?
No. Unlike the Actual Cost Method, which generally requires a dedicated area for expenses like cleaning and lighting, the Fixed Rate Method allows you to claim deductions even if you work from a communal space like a kitchen table or lounge.
Can I claim my phone bill separately if I use the Fixed Rate Method?
No. The 70-cent hourly rate for 2025–26 already covers all home and mobile phone usage. If you want to claim the specific work-related portion of your mobile phone bill, you must use the Actual Cost Method for all your work-from-home expenses.