I work from home most of the week — can I claim part of my rent or mortgage interest?

Four days a week the office is a corner of your own place — the spare bedroom, or the end of the dining table. Meanwhile the rent goes out every Thursday, or the mortgage on the first of the month, and it is far and away the biggest bill in the house. Naturally the question forms: if this is where the work happens, shouldn't some of that count?

It is a fair question, and it is being asked a lot right now — the ATO has said it is seeing taxpayers incorrectly claiming rent, mortgage interest and other occupancy expenses as part of their work-from-home claim. The rule behind it is short. The reason it catches people is that the sensible-sounding version of it is not the actual test.

Two different buckets, and only one of them is normally open to employees

Working-from-home costs split into two groups, and the split does all the work. Running expenses are the costs of using your home — electricity and gas for heating, cooling and lighting, phone and internet, stationery and computer consumables. That is the group the 70-cents-an-hour fixed rate is built for.

Occupancy expenses are different: they are what you pay to own or rent the home in the first place. The ATO's list is mortgage interest, rent, council and water rates, land taxes and house insurance premiums. And on this group its position for employees is one line: as an employee working from home, generally you can't claim occupancy expenses — you can claim running expenses.

The exception exists, but it is narrower than it sounds

You can only claim occupancy expenses if you have an area of your home set aside that has the character of a 'place of business', and you can show all three of the following: that the nature of your income-earning activities requires you to have a place of business; that it was necessary for you to work from home because your employer doesn't provide you with an alternative place of business — as opposed to your employer allowing you to work from another location; and that the area you use is exclusively or almost exclusively used for work and isn't readily capable of being used for any other purpose.

The signals the ATO looks for behind those conditions are physical, not administrative: the area is clearly identifiable as a place of business, it isn't readily capable of being used for private or domestic purposes, it is exclusively or almost exclusively used for carrying on a business, and it is used regularly for visits of clients or customers. If your employer provides you with a place to work, you can't claim occupancy expenses at all — the ATO's example is an employee whose job is based at the employer's office in another city but who is allowed to work from her own home instead. Her employer provides an office, so there is no claim; where she lives is her choice.

The example a lot of people assume is theirs

The ATO's other example is closer to home for anyone whose workplace shut. An employee's employer permanently closes the office he worked from; from January he works at a desk in his lounge room or at the dining table, and since he only needs a laptop and a phone, no room is set aside. He can't claim any portion of his occupancy expenses. Note what that means: his employer genuinely hasn't given him a work location and it genuinely is necessary for him to work from home — two of the three conditions — and the claim still fails, because the lounge and dining rooms are readily capable of private use and are in fact used that way every day.

The contrast is an on-site manager of a townhouse complex, whose front room is 6m² of a 120m² home, has lockable doors at both ends, a built-in counter, desk, filing cabinets and a photocopier, a sign out the front, and a steady stream of residents and tradespeople coming to it. He claims 5% of his rent — the floor-area share. That is the shape of a genuine claim: a room that has stopped being part of the house.

The part that can cost more than the deduction is worth

Here is the trap that makes this worth thinking about even if you might qualify. Your main residence is normally exempt from capital gains tax. If you acquired your home after 20 September 1985 and you are eligible to claim occupancy expenses, there are CGT implications for that home. If you only claim running expenses, there are none.

And eligibility is judged on its own terms, not on what you put in the return. The ATO applies an 'interest deductibility test': whether you would be allowed a deduction for home loan interest if you had borrowed to acquire your home — a test it says must be applied even if you haven't borrowed money at all. If you are, or would be, entitled to claim part of the interest, your home is subject to CGT to the same extent. You can't reduce the eventual capital gain by choosing not to claim some or all of the interest, and you can't add the interest you didn't claim to your cost base instead.

There is paperwork attached to that too. Where the income-producing use started after 20 August 1996, the gain is worked out from the home's value when you first used it that way — which is why the ATO's advice is to get a market valuation at that point rather than years later. Records of the occupancy expenses, a floor plan with the work area marked, and the purchase and sale contracts have to be kept for the entire period you own the home and for at least 5 years after you sell it.

If you're a sole trader, you're on a different track

None of the above shuts the door on people running an actual business from home. A home-based business is one where an area of the home is set aside and used exclusively as a place of business, and there the business portion of occupancy expenses — mortgage interest or rent, council rates, land taxes, house insurance premiums — can be deductible, including where most of the business is conducted online. The place-of-business test is the same one, and so is the consequence: running a home-based business may have CGT implications when you sell, though the small business CGT concessions may be available to reduce the gain.

Even without a dedicated room, a sole trader can still claim additional running expenses incurred as a direct result of working from home — a desk in the lounge room counts for that. It is only the rent-and-mortgage bucket that needs the dedicated space.

So the short version, current as at August 2026: for most employees the rent and the mortgage interest stay out of the claim no matter how many days a week you're at home, and the 70-cents-an-hour running-expense claim is the one to get right instead. If you do have a genuine dedicated room — a consulting space, a workshop, a business address people come to — the deduction and the capital gains side need to be looked at together before you lodge, because the second one is the more expensive of the two and it arrives years later.

This is general information, not advice about your circumstances, and whether an area of a home has the character of a place of business turns on facts that differ house to house. If you're weighing it up, our individual tax return service and our sole traders and side businesses service are where that conversation belongs, and the income tax calculator will show what a deduction of a given size is actually worth at this year's rates before you go chasing it.