Standard $1,000 deduction for work-related expenses from 2026–2027 (May Federal Budget 2026)

The Budget confirmed that the proposed $1,000 standard deduction for work-related expenses will apply from the 2026–2027 income year, subject to enacting legislation. The measure, originally announced on 13 April 2025 as part of Labor’s 2025 election policy, will provide eligible taxpayers with a simpler way to claim a standard deduction of up to $1,000 without needing to incur or substantiate work-related expenses covered by the standard deduction.

The draft legislation for this measure proposes to introduce an optional $1,000 standard deduction for work-related expenses for individuals who are Australian tax residents at any time during the income year and derive “assessable labour income”. Broadly, assessable labour income includes amounts included in assessable income from which PAYG withholding is required, even if no amount is actually withheld, including salary and wages, directors’ fees, office-holder payments, certain termination or retirement payments and parental leave pay.

The standard deduction will be capped at the lesser of $1,000 and the taxpayer’s total assessable labour income. It will be reduced dollar-for-dollar by covered work-related deductions claimed, including certain general deductions, car expenses, travel between workplaces, repair deductions, capital allowance deductions, balancing adjustment deductions and COVID-19 test deductions. This ensures taxpayers do not receive a double benefit.

In practical terms, taxpayers with covered work-related deductions of less than $1,000 may claim the standard deduction instead of itemising those expenses, or may claim their actual covered deductions and receive a residual standard deduction so that the combined amount equals up to $1,000. If an individual’s total covered deductions exceed $1,000, the taxpayer will not receive any standard deduction and will instead claim their actual work-related deductions under the ordinary rules.

The standard deduction will replace the existing $300 no-receipt threshold and the $150 laundry expense concession.

The draft legislation provides for some deductions to still be claimed separate to and independent of the standard deduction. These include:

• deductions unconnected with assessable labour income (eg interest income deductions);
• specific deductions such as for gifts or contributions;
• costs of managing tax affairs;
• income protection, personal sickness and accident insurance premiums; and
• union or professional association membership fees.

Capital allowances

Under the proposal, depreciating assets that a taxpayer reasonably expects to use mainly to produce assessable labour income cannot be allocated to a low-value pool from 1 July 2026. Where a balancing adjustment event occurs for a depreciating asset that has been used to produce assessable labour income, a taxpayer who has received the standard deduction for one or more income years overlapping with the asset’s effective life may choose to reduce the balancing adjustment amount by 50%. Related amendments will also address CGT event K7 calculations for depreciating assets used partly for non-taxable purposes.

Interaction with FBT

Where an expense payment fringe benefit is covered by the standard deduction and provided under a salary packaging arrangement, the otherwise deductible rule will not apply to reduce the taxable value. The employer will therefore be assessed on the full taxable value of the benefit, provided no other exemption or reduction otherwise applies.

The exemption for eligible work-related items will be limited to benefits provided outside salary packaging arrangements. The existing restriction on substantially identical items in the same FBT year will be repealed. The FBT amendments will apply to FBT years from 1 April 2027.