How to claim work from home tax deductions as a small business owner in 2025

Understanding the ATO's fixed rate method

As of 1 July 2024, the ATO has increased the fixed rate for working-from-home deductions to 70 cents per hour, up from 67 cents. This method simplifies the process by allowing you to claim a set rate for each hour worked from home, covering expenses such as:

• Electricity and gas for heating, cooling, and lighting
• Home and mobile phone usage
• Internet expenses
• Stationery and computer consumables

To use this method, you must record the hours worked from home and retain evidence of the expenses incurred, such as invoices or receipts. This approach is particularly beneficial for small business owners who prefer a straightforward calculation without the need to itemise each expense.

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Work-from-home eligibility criteria

To claim working-from-home deductions using the fixed rate method, you must:

• Be working from home to fulfil your employment or business duties
• Incur additional running expenses as a result of working from home
• Keep records showing you incur these expenses

It's important to note that occasional tasks, like checking emails or taking calls, do not qualify. You must be performing substantive work duties from home.

Work-from-home record-keeping requirements

From 1 March 2023, the ATO requires taxpayers to maintain a record of all hours worked from home for the entire income year. Estimates or a four-week representative diary are no longer accepted. Acceptable documents include timesheets, rosters, or a diary kept contemporaneously.

Additionally, you must keep at least one monthly or quarterly invoice for each expense you claim or one receipt for every item bought. This documentation is essential to substantiate your claims and ensure compliance with ATO requirements.

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Alternative: the actual cost method

You can use the actual cost method to claim deductions for working-from-home expenses. This involves calculating the actual costs incurred as a result of working from home, such as:

• Electricity and gas
• Phone and internet expenses
• Depreciation of office furniture and equipment
• Cleaning expenses for a dedicated home office

While this method can potentially result in a larger deduction, it requires detailed records and calculations for each expense. It's best suited for those who have work-related significant expenditures and are diligent with their record-keeping.

Why this matters more than ever

According to the Australian Bureau of Statistics, approximately 37% of Australians work from home in some capacity. This number is often higher for small business owners and sole traders, as many operate out of home-based environments to reduce overheads and stay flexible.

The increase in the fixed rate to 70 cents per hour may seem small, but it can add up significantly over a year. For example, working 40 hours a week from home across 48 weeks equates to 1,920 hours annually. At 70 cents an hour, that's a tax deduction of $1,344. That's a meaningful boost when tax time comes around—especially for those operating on tight margins.

Common traps to avoid

One of the biggest issues small business owners face is not keeping sufficient records throughout the year. Many think they'll remember how many hours they worked or what they spent, only to realise they don't have what the ATO requires when it's time to lodge their return.

It's also important not to claim expenses you haven't incurred. For instance, you can't claim a deduction for electricity if you don't pay a separate electricity bill (for example, if it's included in rent and not itemised). Similarly, claiming internet usage without a monthly statement to back it up could put you at risk of an audit.

How Thriday can help

This is precisely where Thriday comes in. As a small business owner myself, I know how overwhelming it can be to manage receipts, calculate deductions, and stay across changing tax rules. That's why I built Thriday—to make this part of running a business simple and stress-free.

Thriday automatically tracks income and expenses from your business bank account and uses AI to categorise everything accurately. That means you can:

• Identify deductible expenses like electricity, internet, and stationery without digging through bank statements
• Automatically generate reports at tax time, showing a breakdown of relevant home office costs
• Store digital copies of your receipts so you're audit-ready
• Keep a record of your hours worked at home and sync that with your financial data

It's the easiest way to track your work-from-home deductions and comply with ATO requirements. Best of all, it's all in one place—banking, accounting, and tax—and automated.

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Final thoughts

As more Australians choose flexible, remote work, it's crucial to stay on top of what you can claim. Whether you run a full-time operation or juggle your business alongside another job, the updated fixed-rate method makes it easier to stay compliant while boosting your refund.

Just remember: claiming deductions starts with good habits and excellent record-keeping. If you get your system in place early and use a tool like Thriday to automate the complex parts, you'll save money and avoid the end-of-financial-year panic many small business owners face.

Make the most of the deductions available to you. Stay informed. Let technology like Thriday do the heavy lifting so you can get back to doing what you love—running your business.