Highlights

• It was inserted as section 25-130 of the Income Tax Assessment Act 1997 by the Treasury Laws Amendment (Tax Reform No.

• The draft guidance explains the deduction equals the lesser of $1,000 and your total assessable labour income, so it cannot create a loss.

• Paragraph 32 of the draft deals with what happens when claims fail.

• He claims $1,600 of work expenses: $900 for car trips and $700 for working from home.

A rejected tax deduction can feel like a double hit: the expense disappears and the refund shrinks. The new $1,000 standard deduction offers an important qualification to that fear, but it is not a blanket defence against an audit.

A Passed Law With a Draft Rulebook

It was inserted as section 25-130 of the Income Tax Assessment Act 1997 by the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, which received assent on 26 June 2026. It starts in the 2026–27 income year. Tax guidance indicates the deduction does not apply to 2025–26 returns, which self-lodgers must file by 31 October. How the ATO will run it is set out in draft Law Companion Ruling LCR 2026/D5, issued on 26 August. It is still a draft, so its wording and examples could change before it is finalised. Its proposed date of effect is 1 July 2026. The distinction matters because the headline rule rarely tells the entire story. Timing, eligibility and supporting records can change the outcome for two people facing seemingly similar circumstances.

Why Itemising Switches the $1,000 Off

The draft guidance explains the deduction equals the lesser of $1,000 and your total assessable labour income, so it cannot create a loss. That amount is then reduced dollar for dollar by the covered work-related expenses you claim yourself. These include working from home costs, car expenses, travel between workplaces, work uniforms, self-education and decline in value on work equipment. The ruling gives taxpayers whose expenses exceed $1,000 two choices. Under Option 1, they claim nothing and let the ATO apply the standard amount. Under Option 2, they claim the expenses and their standard deduction is reduced, possibly to nil. A practical decision starts with the numbers, but should not end there. Compare the likely benefit with compliance costs, the chance that assumptions change and any restrictions that apply.

The Safety Net in Paragraph 32

Paragraph 32 of the draft deals with what happens when claims fail. It says that if covered expenses are later found not to be deductible, we may increase your standard deduction amount (as part of making or amending the assessment for that income year) up to the standard deduction amount you would otherwise be entitled to deduct for that income year. A policy can create an opportunity while still leaving taxpayers responsible for checking the conditions and keeping suitable evidence.

Hypothetical Example: A Partly Rejected Claim

He claims $1,600 of work expenses: $900 for car trips and $700 for working from home. Because his claims exceed $1,000, his standard deduction falls to nil and his total work deductions are $1,600. One observation is useful context, not a guarantee about what happens next.

Where the Safety Net Stops

The restored amount is capped at what you would otherwise have received: the lesser of $1,000 and your labour income. It cannot top you up beyond that. Cash flow, deadlines and documentation deserve attention before any commitment.

Key Dates to Watch

Comments on LCR 2026/D5 close on Friday 9 October 2026, with submissions going to the contact officer named in the draft. The ATO will then publish a compendium of comments as part of finalising the ruling, and the final version could differ from the draft. Proposed rules and draft administrative guidance should be distinguished from provisions already enacted.

General information only. This article is educational and does not constitute personal financial, tax or legal advice.