diff --git a/backend/sftp/sftp.go b/backend/sftp/sftp.go
index c124e1eae..efd5412bc 100644
--- a/backend/sftp/sftp.go
+++ b/backend/sftp/sftp.go
@@ -19,7 +19,6 @@ import (
 	"sync"
 	"time"
 
-	homedir "github.com/mitchellh/go-homedir"
 	"github.com/ncw/rclone/fs"
 	"github.com/ncw/rclone/fs/config"
 	"github.com/ncw/rclone/fs/config/configmap"
@@ -27,6 +26,7 @@ import (
 	"github.com/ncw/rclone/fs/config/obscure"
 	"github.com/ncw/rclone/fs/fshttp"
 	"github.com/ncw/rclone/fs/hash"
+	"github.com/ncw/rclone/lib/env"
 	"github.com/ncw/rclone/lib/readers"
 	"github.com/pkg/errors"
 	"github.com/pkg/sftp"
@@ -318,21 +318,6 @@ func (f *Fs) putSftpConnection(pc **conn, err error) {
 	f.poolMu.Unlock()
 }
 
-// shellExpand replaces a leading "~" with "${HOME}" and expands all environment
-// variables afterwards.
-func shellExpand(s string) string {
-	if s != "" {
-		if s[0] == '~' {
-			newS, err := homedir.Expand(s)
-			if err == nil {
-				s = newS
-			}
-		}
-		s = os.ExpandEnv(s)
-	}
-	return s
-}
-
 // NewFs creates a new Fs object from the name and root. It connects to
 // the host specified in the config file.
 func NewFs(name, root string, m configmap.Mapper) (fs.Fs, error) {
@@ -361,7 +346,7 @@ func NewFs(name, root string, m configmap.Mapper) (fs.Fs, error) {
 		sshConfig.Config.Ciphers = append(sshConfig.Config.Ciphers, "aes128-cbc")
 	}
 
-	keyFile := shellExpand(opt.KeyFile)
+	keyFile := env.ShellExpand(opt.KeyFile)
 	// Add ssh agent-auth if no password or file specified
 	if (opt.Pass == "" && keyFile == "") || opt.KeyUseAgent {
 		sshAgentClient, _, err := sshagent.New()
diff --git a/lib/env/env.go b/lib/env/env.go
new file mode 100644
index 000000000..6485e8214
--- /dev/null
+++ b/lib/env/env.go
@@ -0,0 +1,23 @@
+// Package env contains functions for dealing with environment variables
+package env
+
+import (
+	"os"
+
+	homedir "github.com/mitchellh/go-homedir"
+)
+
+// ShellExpand replaces a leading "~" with the home directory" and
+// expands all environment variables afterwards.
+func ShellExpand(s string) string {
+	if s != "" {
+		if s[0] == '~' {
+			newS, err := homedir.Expand(s)
+			if err == nil {
+				s = newS
+			}
+		}
+		s = os.ExpandEnv(s)
+	}
+	return s
+}
diff --git a/lib/env/env_test.go b/lib/env/env_test.go
new file mode 100644
index 000000000..0382ecfed
--- /dev/null
+++ b/lib/env/env_test.go
@@ -0,0 +1,31 @@
+package env
+
+import (
+	"os"
+	"testing"
+
+	homedir "github.com/mitchellh/go-homedir"
+	"github.com/stretchr/testify/assert"
+	"github.com/stretchr/testify/require"
+)
+
+func TestShellExpand(t *testing.T) {
+	home, err := homedir.Dir()
+	require.NoError(t, err)
+	require.NoError(t, os.Setenv("EXPAND_TEST", "potato"))
+	defer func() {
+		require.NoError(t, os.Unsetenv("EXPAND_TEST"))
+	}()
+	for _, test := range []struct {
+		in, want string
+	}{
+		{"", ""},
+		{"~", home},
+		{"~/dir/file.txt", home + "/dir/file.txt"},
+		{"/dir/~/file.txt", "/dir/~/file.txt"},
+		{"~/${EXPAND_TEST}", home + "/potato"},
+	} {
+		got := ShellExpand(test.in)
+		assert.Equal(t, test.want, got, test.in)
+	}
+}