Key Highlights

  • From 2026–27, workers with under $1,000 of work expenses can take a flat deduction with no receipts.
  • The ATO's draft ruling LCR 2026/D5 explains how the standard deduction works.
  • Tax agent fees can still be claimed on top of the standard deduction.
  • The draft is a preliminary view and may change once finalised.

Many workers spend a few hundred dollars a year on work costs and then hunt for receipts at tax time. A draft ATO ruling now spells out a simpler choice for the 2026–27 income year: if your expenses come in under $1,000, you can skip claiming them and take the new $1,000 standard deduction instead, with no receipts. You can still claim your tax agent's fee on top.

The year in question is already under way. It started on 1 July 2026, and the first returns using the new rule will be lodged from July 2027. That means the record-keeping decisions start now.

What the law and the draft ruling say

The $1,000 standard deduction for work-related expenses is enacted law. It was inserted into the tax law by the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 and applies from the 2026–27 income year.

How the ATO will apply it is set out in draft Law Companion Ruling LCR 2026/D5, issued on 26 August 2026. Comments closed on 9 October. The ATO says the draft "represents the Commissioner's preliminary view only", and it is proposed to take effect from 1 July 2026 once finalised.

So the law is settled, but the guidance on how it works is still a draft and could change before it is final.

The amount is the lesser of $1,000 and your total assessable labour income for the year. Any work-related expenses you claim reduce it dollar for dollar, possibly to nil, so you can't double up.

The $700 example, and what the choice is worth

The draft ruling's Example 4 involves Nadia, a teacher. She has $700 of work expenses, covering stationery, journals and travel, and a $100 tax agent fee.

She chooses not to claim the $700. She gets the full $1,000 standard deduction without substantiating those expenses.

The $100 fee to her tax agent is a cost of managing her tax affairs, so it doesn't reduce the standard deduction. The draft says it "may be claimed as a separate deduction", but she must keep records for it.

The ATO says: "You do not need to incur or substantiate expenses to be entitled to the standard deduction."

Hypothetical example: Sam earns $70,000 in 2026–27, putting him in the 30% tax bracket. With the 2% Medicare levy, each dollar of deduction is worth 32 cents.

Option A: he claims his actual $700 of expenses. His standard deduction falls to $300, so his total work deduction is still $1,000.

Option B: he claims nothing and takes the $1,000 standard deduction.

Either way his work deduction is $1,000, saving him $320 in tax. But under Option A he needs records for every dollar of the $700. Under Option B he needs none. The real difference is paperwork and audit risk, not dollars.

If he also paid a $150 tax agent fee, he can claim it separately under either option. That's another $48 off his tax, at 32 cents in the dollar.

So he claims $1,150 in total and pays $368 less tax.

When claiming the actual amount makes sense: George

Example 5 in the draft looks at George, also a teacher, with $1,100 of work expenses. He has two choices.

  • Option 1: don't claim the expenses, take the $1,000 standard deduction and substantiate nothing.
  • Option 2: claim the full $1,100. His standard deduction falls to nil, and he must fully substantiate the $1,100.

The second option gets him $100 more in deductions. At a 32% combined rate, that is worth $32, in exchange for keeping and producing records for every claim.

The draft also warns that some long-standing shortcuts disappear from 2026–27. The exceptions that let people claim up to $300 of work expenses, or up to $150 of laundry, without full written evidence no longer apply. If you claim more than $1,000 of covered expenses, the ATO says, "you need to fully substantiate them".

What sits outside the $1,000

Not every deduction gets swallowed by the standard deduction. According to the draft ruling, these do not reduce it:

  • Tax agent fees and other costs of managing your tax affairs
  • Charitable donations to deductible gift recipients
  • Investment-related deductions
  • Union or association fees
  • Income protection, personal sickness and accident insurance premiums

These can be claimed on top, with the usual records.

The ATO still suggests keeping records of work expenses through the year, because you may not know until 30 June whether your spending will top $1,000.

Who gets it, and the decision rule

Budget papers estimate about 6.2 million workers, or 42% of taxpayers, will benefit, with an average saving of $205. That estimate is a Budget projection, not an ATO count.

The deduction is for individuals with assessable labour income, such as salary and wages. The draft ruling's list of what counts is exhaustive and doesn't include self-employment income, so sole traders' Business income won't attract it.

It also doesn't apply to the 2025–26 return being lodged now. That return still runs on the old rules.

Pulling the draft's examples together, the decision for an eligible employee looks like this:

  • Covered work expenses under $1,000: claiming them adds nothing, because the standard deduction shrinks by the same amount. Taking the flat $1,000 means no receipts.
  • Covered work expenses over $1,000: claiming the actual amount gives a bigger deduction, but every dollar must be substantiated.
  • Tax agent fees, donations, union fees and similar items: claim them separately either way, with records.

For people whose costs hover near $1,000, the gain from claiming the actual amount is small. Someone with $1,050 of expenses would get just $50 more in deductions, worth $16 at a 32% combined rate.

Key dates and what to watch

  • Now: the 2026–27 income year is running. Keeping records remains sensible if your work costs might exceed $1,000.
  • Final ruling: the ATO has not yet finalised LCR 2026/D5. The final version could change examples or wording.
  • 30 June 2027: the 2026–27 income year ends.
  • From July 2027: the first returns claiming the $1,000 standard deduction can be lodged.
  • 2027–28: the $250 Working Australians Tax Offset, also enacted, starts, and the lowest tax rate falls to 14%.