For many Australians, working from home is now part of everyday life. But with that shift comes a familiar question at tax time: what’s the best way to claim my work-from-home expenses?
The ATO offers more than one approach, and the “right” choice can depend on how you work, what you’ve spent, and how much time you’re willing to put into record-keeping. Understanding the difference between the fixed rate method and the actual costs method can help you feel more confident when it’s time to lodge.
Below, we break down how each method works, the pros and cons, and how to decide which option might give you the best outcome – without overcomplicating things.
A quick refresher on your options
The fixed rate method (formerly known as the shortcut method)
During the pandemic, the ATO introduced the “shortcut method” to make working-from-home claims simpler. That temporary option has now ended, but a revised fixed rate method has become the new go-to for many people.
Under the fixed rate method, you can claim a set number of cents per hour worked from home. This rate is designed to cover a range of running expenses, such as electricity, internet and phone usage, and stationery. Instead of calculating every individual cost, you only need to track your hours and keep a few supporting records.
This approach remains popular because it’s straightforward and doesn’t require you to dig through old bills or calculate usage percentages. For many taxpayers, that simplicity is worth its weight in gold.
The actual costs method
If you’re someone who prefers precision, the actual costs method might sound appealing. With this option, you claim exactly what you’ve spent on eligible work-related expenses while working from home. This can include electricity, cleaning, internet, consumables, equipment depreciation, and more… but only the work-related portion.
While the actual costs method can lead to a higher deduction, it comes with a catch: you’ll need to keep detailed records. That means receipts, electricity bills, floor plans (in some cases), and clear calculations showing how you’ve arrived at each figure. It’s accurate but time-intensive.
Shortcut method vs actual costs: Australia WFH – which is better?
There’s no one-size-fits-all answer here. The best choice depends on a few practical questions:
- How much time do you want to spend on record-keeping? If you’d rather keep things simple, the fixed rate method wins. You log your hours, keep basic proof, and move on with your life.
- Have your actual work-related expenses increased significantly? If you’ve invested in new equipment, or your running costs have climbed, the actual costs method might result in a higher deduction… but only if you have the paperwork to support it.
- Do you work from home full-time or only some of the time? For occasional WFH days, the fixed rate method is often efficient and adequate. On the other hand, if you’re clocking a full workweek at home, it may be worth comparing both methods to see which comes out on top.
- Are you comfortable calculating usage percentages? Actual costs require you to estimate the work-related percentage for each expense. If that level of detail makes your eyes glaze over, the fixed rate method may feel far less stressful for you.
The benefits and drawbacks at a glance
Fixed rate method
Pros:
- Simple and time-saving
- No need to calculate individual expense usage
- Easier record-keeping
Cons:
- May not capture all your eligible expenses
- Flat rate may result in a smaller deduction for heavy WFH users
Actual costs method
Pros:
- Potentially higher deductions
- More tailored to your actual expenses
Cons:
- Requires significant documentation
- More complex calculations
- Easier to make mistakes if you’re not confident with numbers
So, which one should you choose?
Start by asking yourself how much effort you’re willing to put in and whether your expenses justify it. For many Australians, the fixed rate method strikes a balance between claiming something meaningful and keeping the process manageable.
But if you’ve spent more than usual this year (perhaps you upgraded your office chair, replaced your laptop, or saw your electricity usage shoot up), the actual costs method may produce a better result. Just make sure you’ve got the records to back it up.
If you’re unsure which option suits your situation, a registered tax agent can help you compare both approaches using your actual numbers.
Financial literacy makes tax time easier
Understanding the fixed rate method and the actual costs method is just one part of feeling more confident with your money. The more you understand how everyday financial decisions work – from tax to budgeting to goal-setting – the easier it becomes to make informed choices.
At Money101, we’re big believers in giving Australians the tools they need to build financial capability. Our interactive learning modules break down topics like tax, super, debt and everyday money management in simple, engaging ways. Whether you’re an employer, member organisation or community group wanting to support financial wellbeing, our education-first approach can help your people feel more equipped and in control to avoid common financial mistakes.
If you’d like to explore our financial wellbeing programs, ready-made modules or custom-branded learning solutions, we’d love to show you what’s possible.
