The actual cost method is where you claim a deduction for the actual costs you have when running a business from home. To use this method, you need to keep evidence of all expenses including bills and receipts, as well as how you worked out the business portion of your costs.

You can’t claim a deduction for private expenses so remember to keep your private and business records separate. If a record (for example, a receipt) is for both private and business expenses, you can only claim the business portion.

How to calculate your claims 

To calculate the actual cost of your expenses you need to work out the periods of time that you use an area in your home for business. This is also called a pattern of use. To work out your pattern of use, you need to keep a diary for a representative four-week period showing how you use your home work area for business purposes. You can then apply that as a pattern of use for the whole year. However, don’t forget to exclude periods when you were on holidays or not working because of illness. 

You must keep a representative four-week diary for each financial year.

Example:

Pam's home-based business expenses for each item are shown in the following table. Pam has worked out the business-related expenses based on diary entries for a representative four-week period. She has excluded the 4 weeks holidays she takes.

Running expenses using actual running expenses