Home-Based Business Deductions for Sole Traders (2025–26)

Updated for the 2025–26 income year, with 2026–27 changes noted. Reviewed 19 October 2026.

If you run a business from home as a sole trader or partnership, you can claim the business portion of running expenses, and possibly occupancy expenses if part of your home is a genuine place of business. The second choice has CGT consequences, so it's worth understanding before you claim.

Running expenses vs occupancy expenses

Running expenses are the extra costs of using your home for business: electricity and gas, phone and internet, stationery, cleaning a dedicated area, and the decline in value and repairs of equipment and furniture. You can claim these even without a dedicated place of business. Use the fixed rate (70c per hour for 2025–26), which covers energy, phone, internet and stationery, or the actual cost method.

Occupancy expenses are costs of owning or renting your home: rent, mortgage interest, council rates, land tax and house insurance. You can only claim them if an area of your home has the character of a place of business, for example clearly identifiable as a business (signage), not readily suitable for private use, used exclusively or almost exclusively for the business, and regularly visited by clients. A home hair salon with its own client entrance is the ATO's example. If the personal services income rules apply to you, you may not be able to claim occupancy expenses.

CGT and your home

If you have a place of business at home and can claim occupancy expenses, you lose part of the main residence exemption, generally by the floor-area percentage for the period of business use. This applies even if you didn't actually claim the interest. The small business CGT concessions rarely help for a home that is mainly private.

Other common home-business deductions

• Business equipment: the $20,000 instant asset write-off for eligible small businesses for assets first used or installed ready for use in 2025–26.
• Business use of your car (logbook or 88c per km up to 5,000 km for 2025–26).
• Accounting, software subscriptions, insurance and advertising.
• Personal super contributions (see our super contributions guide).

Worked example

Example (illustrative figures only – not real client data): Tom runs a bookkeeping business from a spare room he uses only for work (no client visits). He keeps a log showing 1,500 hours worked at home.

Tom's room has no signage or client visits, so it probably isn't a place of business. He doesn't claim occupancy expenses, and his main residence exemption isn't affected.

Checklist

• Decide whether your space is genuinely a place of business, and document why.
• Log hours worked at home.
• Keep a floor plan and area calculations if claiming occupancy.
• Get a market valuation when business use starts, if claiming occupancy.

Common mistakes to avoid

• Claiming mortgage interest without a genuine place of business.
• Forgetting the CGT impact of occupancy claims.
• Claiming phone and internet on top of the fixed rate.

Record-keeping tips

• Keep home-ownership records for as long as you own the home plus 5 years.
• Use accounting software and a separate business bank account.

When to see an accountant

Get personal advice from a registered tax agent if:

• you see clients at home or have a dedicated studio or workshop;
• PSI rules may apply to your income;
• you plan to sell your home;
• you have an ABN, side business or rental property as well as your job;
• you have received an ATO letter, review or amended assessment.

Related guides

• Sole traders
• Working from home
• GST and BAS basics
• all deduction guides

ATO sources for this guide

• ATO: Home-based business expenses
• ATO: Home-based business expenses (sole trader or partnership)
• ATO: Home-based business and CGT implications
• ATO: Fixed rate method
• ATO: $20,000 instant asset write-off 2025-26
• ATO: Copyright notice

This guide is written in our own words. It draws on information published by the Australian Taxation Office, and some short phrases are quoted with attribution. Source material: © Australian Taxation Office for the Commonwealth of Australia. Top Accountants is not endorsed by, or affiliated with, the ATO.