Kristy Pan & Co. CPA Australia

Updated18 August 2026

General Information *

Home-based business expenses

Source

This factsheet is based on the Australian Taxation Office publication Small business: Home-based business expenses (NAT 75196-05.2026, May 2026). It is our plain-English summary of that document — not an ATO publication, and not a replacement for it. Download the original ATO flyer (PDF) or read it at ato.gov.au/homebasedbusiness.

If you run your business from home, part of what you already pay to run that home may be deductible. What you can claim turns on how you operate from home — a desk in the lounge room is treated very differently from a room that is genuinely a place of business, and a company or trust is treated differently again.

Running vs occupancy 70c per hour fixed rate Regulated by the ATO

Published by Kristy Pan & Co.·CPA Australia member firm, Registered Tax Agent 76731015·18 August 2026

English & Chinese PDF versions of this factsheet are available on request — please contact us.

* General information only. Kristy Pan & Co. provides this material for general knowledge; it does not constitute tax or financial advice and does not take account of your specific circumstances. This information is current as at 18 August 2026; we will do our best to update it when any policy or legislation changes. Please contact us before acting.

The two kinds of expense

A home-based business has two categories of deduction — running expenses and occupancy expenses. Almost everyone who works from home can claim the first. Only a much smaller group can claim the second, and the test that separates them is whether part of your home is a place of business.

Running expenses

The increased cost of using your home’s facilities for the business — power, cleaning, phone and internet, and the decline in value of your equipment. Available even where the space is just a desk in the lounge room.

Occupancy expenses

What you pay to own or rent the home itself — mortgage interest or rent, council rates, land tax, house insurance. Only claimable where an area of the home has the character of a place of business.

Four rules that apply either way

Business portion only

You claim only the part of each expense that relates to running the business. Normal private living costs stay private.

Records for 5 years

You must be able to show the business incurred the expense and how you worked out the claim — and keep that evidence for at least five years.

CGT on your home

Claiming occupancy expenses — or charging your own business rent — can cost you part of the main residence exemption when you sell.

GST-exclusive amounts

If you are entitled to GST input tax credits, claim the income tax deduction at the GST-exclusive amount — otherwise you are claiming the same GST twice.

Running expenses & the three methods

Running expenses are the extra costs you incur because the business uses your home’s facilities. You can claim them whether the space is a separate study or a desk in the lounge room — it does not need the character of a place of business.

What counts

The cost of using the room — heating, cooling and lighting.
Cleaning costs.
Landline phone and internet costs.
Decline in value (depreciation) and repairs to equipment such as computers, tools and machinery; furniture such as chairs, desks and bookcases; and furnishings such as curtains, carpet and light fittings — furnishings only if you have a dedicated or separate room.

Choosing a method

You may use any method to work out running expenses, provided it is reasonable in your circumstances, it excludes your normal private living costs, and you have records showing how you calculated it. In practice there are three.

Fixed rate — 70c/hour

70 cents for each hour you operated the business at home. Covers energy (electricity and gas), phone and internet usage, stationery and computer consumables. You must record every hour worked from home for the whole year.

Floor area

Available only if you have an area set aside as a place of business. You apportion by floor area — and you can also claim decline in value on the business portion of depreciating assets and equipment.

Actual cost

You claim only the actual expenses you incur as a result of working from home. The most work, and usually the largest claim where a real room is set aside.

Estimate the fixed-rate claim

Fixed-rate running-expense estimator

Hours you work from home each week

hrs

Weeks in the year you did that

wks

The fixed rate is an alternative to claiming energy, phone, internet, stationery and computer consumables separately — not an addition to them.

Estimated running-expense deduction

$386

70c × 552 hours

Claim separately

Decline in value of laptops, phones and office furniture is not in the rate.

Indicative only, and it assumes you can substantiate every hour with a diary, spreadsheet or similar record kept across the entire income year. It does not test whether the actual cost or floor area method would give you a larger deduction — we compare them for you.

Home phone & internet

Under the actual cost method:

For a home (landline) phone, claim your business calls plus a portion of the line rental.
For internet, claim the proportion of time or data used for business.
Work out the business portion from an itemised account or a pattern of use.

Watch this

You can’t claim the phone, modem or router itself as a running expense.

Those are capital costs, not running costs. You can, however, claim a decline in value deduction for them.

Depreciation of business assets

You can choose the simplified depreciation rules if your aggregated turnover is less than $10 million.
If you use the 70c an hour fixed rate, you can separately claim decline in value on depreciating assets such as laptops, mobile phones and office furniture.
Where an asset is used for both business and private purposes, apportion the depreciation on your pattern of use.

Occupancy expenses & the ‘place of business’ test

Occupancy expenses are what you pay to own or rent your home: mortgage interest or rent, council rates, land taxes and house insurance premiums. You can claim them only if the area you have set aside has the character of a place of business — which can still be true where most of the business is conducted online.

Self-check: does your space look like a place of business?

Tick what applies — nothing here is saved or sent. These are the ATO’s indicators, not a formula: no single one decides it.

It is clearly identifiable as a place of business — for example, a sign at the front of the house.
It is not easily suitable or adaptable for private or domestic use.
It is used exclusively or almost exclusively for the business.
It is used regularly for business visits by clients.

0 0 of 4 apply.The more that apply, the stronger the case that the area is a place of business.

If you are eligible to claim occupancy expenses, you can claim running expenses as well. You usually calculate occupancy expenses on the proportion of the floor area of your home that is a place of business, multiplied by the proportion of the year it was used that way.

The calculation

Occupancy claim = expense × (business floor area ÷ total floor area) × (portion of the year used for business).

The trade-off

An occupancy claim usually costs you part of the main residence exemption.

If you were entitled to claim occupancy expenses — or you own your home and receive rental income from your own business — there may be CGT consequences when you sell. The main residence exemption may not apply for the proportion of the home, and the periods, that you used it for the business.

The deduction is annual and immediate; the CGT cost lands once, years later, and is often larger. This is the single most important thing to model before you start claiming.

Your structure changes the answer

Your business structure affects both your entitlements and your obligations when you claim home-based business expenses.

Sole traders & partnerships

If you operate as a sole trader or a partnership, you claim the costs of running the business from home directly. Whether you can claim running expenses only, or both running and occupancy expenses, depends on whether an area of your home is set aside as a place of business.

Companies & trusts

Where a company or trust operates the business from your home, there should be a genuine, market-rate rental contract (or similar agreement) between the property owner and the entity. That agreement determines which expenses the entity pays and can deduct — typically both running and occupancy expenses.

No agreement, two problems

Without a genuine rental contract, the arrangement can be treated as the entity providing you a benefit.

If there isn’t a genuine contract, there may be tax implications for you personally and for the company or trust for providing benefits to you — the Division 7A territory we cover in a separate factsheet.

Separately, if you are an employee of the company or trust and it pays or reimburses you for some of the costs of running the business from home, you cannot claim those expenses in your individual return. The entity may instead be liable for fringe benefits tax, though exemptions and concessions may reduce it — and additional records may be needed.

Personal services income

If you earn personal services income — whether as a sole trader or through a partnership, company or trust — the PSI rules may restrict deductions for some occupancy expenses. We cover this in detail in our PSI vs PSB factsheet.

Worked examples

Example 1 — fixed rate, sole trader

Rocco, a plumber with no dedicated business premises

Rocco travels to clients’ houses each day from home and does his bookkeeping at the dining table on a computer he bought on 10 November 2025 and uses only for the business. He kept a record of every hour he worked from home between 1 July 2025 and 30 June 2026 — 480 hours.

He claims: running expenses at the fixed rate for the income year × 480 hours, plus the cost of the computer under the simplified depreciation rules — depreciation of computer equipment is not covered by the fixed rate.

He cannot claim: occupancy expenses. He has no dedicated area for the business.

Example 2 — owner of the property and the company

Fern, who runs Fern’s Photos Pty Ltd from the home she owns

Fern’s house has a dedicated studio where she keeps her photography equipment. The company has a formal rental agreement with Fern for the studio at $500 per month, covering the space and facilities such as electricity, and consistent with what hiring a similar studio elsewhere would cost.

The company claims the rent it pays to Fern. Fern reports that rental income in her personal return, and can claim the expenses she incurs in earning it.

There may be CGT implications if Fern sells the house — the price of running the arrangement this way.

The records you need to keep

Every claim needs substantiation: written evidence, tax invoices or receipts. Keep them for at least five years.

Purchase and repairs of equipment, furniture and furnishings used for the business.
Utility bills and cleaning expenses.
Mortgage interest, rent, insurance and council rates — if you claim occupancy expenses.
The rental contract between the homeowner and the business — if you claim occupancy expenses.
How you separated business from private use — for example a diary kept over a representative four-week period, or a record of how you calculated the percentage of your floor plan dedicated to the business.

How we help

We work out which of the three methods gives you the best result and can be substantiated, test whether your space really is a place of business, model the CGT cost before you claim occupancy expenses, put a proper market-rate rental agreement in place where a company or trust runs the business, and set up a record-keeping routine that survives a review.

Download the source ATO flyer (PDF)

Talk to us Read the ATO’s home-based business expenses guidance

Glossary of terms

Running expenses: The increased costs of using your home's facilities for the business — energy, cleaning, landline phone and internet, and the decline in value of equipment and furniture.
Occupancy expenses: What you pay to own or rent your home — mortgage interest or rent, council rates, land taxes and house insurance premiums.
Place of business: An area of your home with the character of a business premises. Indicators include signage, unsuitability for domestic use, exclusive business use, and regular client visits.
Fixed rate method: Claiming 70 cents for each hour you operated the business at home, covering energy, phone and internet usage, stationery and computer consumables.
Floor area method: Apportioning expenses by the proportion of your home's floor area set aside as a place of business, and the proportion of the year it was used that way.
Actual cost method: Claiming only the actual additional expenses you incur as a result of working from home, substantiated item by item.
Decline in value: Depreciation — the deduction for the loss of value of an asset over its effective life, apportioned for private use.
Simplified depreciation: The small business depreciation rules, available where aggregated turnover is less than $10 million.
Aggregated turnover: Your annual turnover plus that of any connected or affiliated entities, used to test eligibility for small business concessions.
Main residence exemption: The CGT exemption for your home. It may be reduced for the proportion of the home, and the periods, used to produce income.
Input tax credit: The GST you can claim back on business purchases. Where you claim it, the income tax deduction is the GST-exclusive amount.
FBT: Fringe benefits tax — payable by an employer on certain benefits provided to employees, including reimbursement of some private expenses.
Division 7A: The rules that treat payments, loans and forgiven debts from a private company to a shareholder or associate as a deemed dividend.
PSI: Personal services income — income mainly a reward for your personal skill and effort. The PSI rules can restrict deductions, including some occupancy expenses.
CGT: Capital gains tax — the tax on the gain made when you dispose of an asset, including your home to the extent it is not exempt.
ATO: The Australian Taxation Office, the Commonwealth agency that administers Australia's tax and superannuation systems.

Disclaimer

This factsheet contains general information only. It is summarised from the Australian Taxation Office publication Small business: Home-based business expenses (NAT 75196-05.2026); where this summary and the ATO's own material differ, the ATO material governs. It does not take into account your circumstances and is not a substitute for advice. Please consult Kristy Pan & Co. about your situation before acting.