Rent Deductions for Working From Home: What You Need to Know in 2026

Landmark ruling ends hopes for employees seeking rent deductions during COVID-19

If you’ve been working from home and wondering whether you can claim part of your rent on tax, a recent Full Federal Court decision has delivered a definitive answer: no, you cannot.

In a unanimous decision handed down last week, Australia’s Full Federal Court has overturned a controversial tribunal ruling that briefly gave hope to renters across the country. The case, involving ABC radio broadcaster Nathaniel Hall, has important implications for anyone who worked from home during the COVID-19 pandemic – and those who continue to do so.

The case that gave renters false hope

When Melbourne went into lockdown during 2021, Nathaniel Hall found himself broadcasting from his rented apartment rather than the ABC’s studios. Like millions of Australians, he didn’t have a choice – government restrictions and his employer’s health policies meant working from home wasn’t optional, it was mandatory.

Hall’s situation was unique in some ways. He spent 75% of his working hours broadcasting from a dedicated home office in his rental property, whilst travelling to the ABC’s Southbank Studios for the remaining 25% of his duties. His accountant claimed nearly $6,000 in rent-related deductions and over $1,000 in car expenses for travelling between his home and the studio.

Initially, the Administrative Review Tribunal agreed with Hall’s position in May 2025. The tribunal reasoned that because COVID-19 restrictions forced him to work from home, his residence had become a genuine workplace. This decision sent ripples through the accounting community and gave many employees hope that they too could claim rent deductions.

But the Australian Taxation Office wasn’t convinced – and they appealed.

Why the Full Court overturned the decision

Last week’s Full Federal Court ruling in FCT v Hall [2026] FCAFC 43 has definitively settled the matter, and the outcome isn’t good news for employees hoping to claim rent deductions.

The three judges unanimously found that whilst COVID-19 undoubtedly required Hall to work from home, this necessity didn’t change what the rent payment was actually for. At its core, rent is paid to secure a place to live – domestic accommodation. The fact that Hall also happened to work from that space during lockdowns didn’t transform it into a work-related expense.

The Court applied what tax lawyers call the “essential character” test. Simply put, what is the primary purpose of the expense? In this case, the essential character of the rent remained private and domestic, even though the space was being used for work purposes.

The Court noted in its decision: “While the prevailing conditions required the respondent to work from home, this necessity did not alter the essential character of the expense.”

What about travel expenses?

The Court also rejected Hall’s claim for car expenses related to travelling between his home and the ABC studios.

The tribunal had previously accepted an argument that Hall was effectively “at work the entire time” when driving between his two work locations. However, the Full Federal Court found this conclusion wasn’t supported by the facts.

This reinforces a longstanding principle in Australian tax law: travel between your home and your regular place of work is considered private travel, regardless of whether you also perform work duties from home on other days.

What this means for Australian employees

The decision provides crucial clarity for the estimated 40% of Australian employees who now work from home at least part of the time.

You cannot claim rent as a tax deduction, even if:

• You were forced to work from home during COVID-19 lockdowns
• Your employer required you to work remotely
• You have a dedicated home office space
• You work from home regularly or full-time

This applies equally whether you’re renting a house, apartment, or any other residential property.

Travel between home and work remains non-deductible, even if:

• You work from home on some days and attend the office on others
• You’re required to split your time between locations
• You perform work duties during your commute

What you CAN still claim

Don’t despair entirely. The decision specifically relates to occupancy expenses like rent and mortgage payments. Employees working from home can still claim legitimate running expenses, including:

Using the fixed rate method (70 cents per hour for 2025-26):

• Electricity and gas for heating, cooling and lighting
• Internet and phone costs
• Stationery and computer consumables

Additional deductions you can claim separately:

• Decline in value (depreciation) of office equipment like computers, chairs and desks
• Repairs and maintenance of work-related equipment
• Cleaning costs (if you have a dedicated work area)
• Work-related phone calls and internet usage (if claiming actual costs instead of the fixed rate)

Why this decision makes sense (even if it’s disappointing)

Whilst the outcome may frustrate employees who’ve been working from home, the Court’s reasoning is sound from a tax policy perspective.

If rent were deductible whenever someone worked from home, it would create a significant loophole. Nearly everyone does some work from home occasionally – checking emails, finishing reports, taking calls. Should all these people be entitled to claim rent deductions? The tax system would become unworkable.

Moreover, rent is fundamentally a private expense. You need somewhere to live regardless of whether you work from home or not. The alternative – allowing rent deductions – would effectively mean the tax system was subsidising people’s choice of where to live.

What if you’ve already claimed rent deductions?

If you’ve claimed rent or similar occupancy expenses in previous tax returns based on the original tribunal decision, you should seek professional advice. The ATO may review these claims in light of the Full Court’s decision.

However, it’s worth noting that the ATO consistently maintained its position throughout this case that rent was not deductible. Many tax agents followed the ATO’s guidance rather than the tribunal’s decision, so this ruling won’t affect most taxpayers.

Looking ahead: The future of work-from-home deductions

This case arrives at a crucial time. The COVID-19 pandemic fundamentally changed how and where Australians work. According to recent Australian Bureau of Statistics data, approximately 37% of employed people worked from home at least occasionally in 2024, compared to just 24% before the pandemic.

The ATO has responded to this shift by updating its guidance and introducing the revised fixed rate method. For the 2024-25 income year onwards, employees can claim 70 cents per hour for all their working-from-home running expenses (increased from 67 cents previously, and significantly higher than the pre-COVID rate of 52 cents).

This simplified method recognises that working from home does create additional costs – just not costs related to rent or mortgage payments.

Practical tips for your 2026 tax return

As we head towards the end of the 2025-26 financial year, here’s what you need to know:

Keep a record of your working-from-home hours. Whether you use a timesheet, diary, or roster, you’ll need evidence of the hours you worked from home to substantiate your claim.

Choose your method carefully. The fixed rate method is simpler and often more beneficial for employees without significant equipment purchases. The actual cost method requires detailed records but may result in higher deductions if you’ve purchased expensive office equipment.

Don’t claim rent or mortgage payments. This decision makes it clear these expenses are not deductible for employees working from home.

Remember the basics. You can only claim expenses you’ve actually incurred, and they must be directly related to earning your income. If your employer reimburses you for an expense, you can’t claim it.

The bottom line

Working from home has become the new normal for millions of Australians, but that doesn’t entitle you to claim your rent as a tax deduction. The Full Federal Court’s decision in FCT v Hall confirms what the ATO has maintained all along: rent is a private expense, regardless of whether you work from home.

Focus instead on claiming the legitimate running expenses you’re entitled to. At 70 cents per hour, these deductions can still add up to meaningful tax savings over the course of a year.

If you’re unsure about what you can claim, or concerned about previous claims you’ve made, contact your registered tax agent for personalised advice based on your individual circumstances.

Need help with your work-from-home deductions? Our experienced tax accountants at MaxGrowth can help you maximise your legitimate claims whilst ensuring you remain compliant with ATO requirements. Contact us today for a consultation.

This article is general information only and should not be relied upon as specific tax advice. Tax laws are complex and individual circumstances vary. Always consult a registered tax agent for advice tailored to your situation.