Key Highlights

  • The $1,000 standard deduction applies from the 2026–27 income year.
  • The Working Australians Tax Offset applies from 2027–28.
  • The rate on the $18,201–$45,000 band is 15% in 2026–27.
  • For the illustrated $60,000 worker, the combined saving reaches about $1,101 a year.

Three of Labor's personal tax changes are now law: a lower rate on the first tax bracket, a $1,000 standard work-related deduction and a $250 offset for working Australians. Each arrives at a different time, so the combined effect builds over two years. For a worker on $60,000, the sums are modest but real. Here is how they add up, which year each one applies to, and what bracket creep may claw back.

The three changes and when they start

The changes are enacted law. They do not all apply in the same income year.

The rate on Taxable Income between $18,201 and $45,000 falls from 16% to 15% from 1 July 2026, which is the current 2026–27 income year. It falls again, to 14%, from 1 July 2027.

The $1,000 standard deduction for work-related expenses also applies from 2026–27. The ATO's guidance on how it works is still in draft form, in LCR 2026/D5.

The $250 Working Australians Tax Offset starts a year later, from 2027–28. It is non-refundable, meaning it can reduce tax payable to zero but cannot create a refund on its own.

Because the 2026–27 year ends on 30 June 2027, most workers will first see the 15% rate and the standard deduction in returns lodged from July 2027, although the lower rate generally also flows through to PAYG Withholding during the year.

How the $1,000 standard deduction works, according to the draft ruling

Under draft LCR 2026/D5, issued on 26 August 2026, the deduction is the lesser of $1,000 and a person's assessable labour income.

The draft says the deduction is reduced dollar for dollar by certain claimed expenses: working from home, car, self-education, uniforms and work travel.

The ATO's own example is a person with $650 of labour income who claims $400 of those expenses. Their standard deduction is $650 − $400 = $250.

Some deductions do not reduce it, according to the draft. These include income protection insurance premiums, union and professional association fees, and deductions for investment, rental, tax affairs or donations. Union and professional fees still need to be substantiated.

The draft is ATO guidance, not the final word. Comments closed on 9 October, and CPA Australia has asked for a "non-exhaustive schedule of common expenses" in the final ruling.

Hypothetical example: a $60,000 worker over three years

Hypothetical example: Jordan, an Australian resident, earns $60,000 a year in wages in each of 2025–26, 2026–27 and 2027–28. Jordan has no other income and, from 2026–27, makes no itemised work-related claims, taking the $1,000 standard deduction instead.

The figures below use resident tax rates, include the low income tax offset on its long-standing settings, and leave out the Medicare levy. They assume Jordan is eligible for the $250 offset.

2025–26, at the 16% rate: tax at the scale rates on $60,000 is $8,788. After a low income tax offset of $100, Jordan pays $8,688.

2026–27, at the 15% rate with the standard deduction: taxable income is $59,000. Tax at the scale rates is $8,220. After a low income tax offset of $115, Jordan pays $8,105.

That is $583 less than in 2025–26. Of that, $268 comes from the rate cut, $300 from the deduction at Jordan's 30% marginal rate, and $15 from a slightly larger low income tax offset.

2027–28, at the 14% rate with the deduction and the $250 offset: tax at the scale rates on $59,000 is $7,952. After the $115 low income tax offset and the $250 offset, Jordan pays $7,587.

That is $1,101 less than in 2025–26. The 14% rate is worth $536 on its own, the deduction $315 including the offset effect, and the new offset $250.

The deduction also trims Jordan's 2% Medicare levy by $20 a year.

What changes if you already claim work expenses

The draft ruling means the standard deduction is not simply added on top of every claim.

Hypothetical example: if Jordan instead claimed $400 for working from home, the standard deduction would fall to $600. The total deduction is still $1,000.

If Jordan paid $500 in union fees, the draft indicates those fees would not reduce the standard deduction. Jordan could claim the $500 in fees plus the full $1,000, provided the fees are substantiated.

A worker with more than $1,000 of claims of the kinds that reduce the standard deduction would, on the draft's approach, gain nothing extra from it.

The draft also says that if claimed expenses are later disallowed, the standard deduction "may be increased" on assessment or amendment. That offers some protection for workers whose itemised claims do not survive ATO review.

What bracket creep takes back

The gains need to be set against bracket creep, where rising wages push more income into higher tax rates.

Analysis by the e61 Institute and Richard Holden found the average tax rate for someone on $45,000 would rise from 11% to 16% over 10 years. On $75,000, it rises from 20% to 22%, and on $190,000 from 29% to 34%.

The analysis found people on $45,000 and $190,000 would have "more than half" of their real income growth taxed, and most other taxpayers would face a rise of at least 2 percentage points.

The Parliamentary Budget Office estimates that, without bracket creep, the budget would be in Deficit of 0.7% of GDP by the end of the decade, compared with the official projection of a 1% surplus.

"The tax increase falls unevenly across the income distribution," said e61 chief executive Michael Brennan.

The Coalition has proposed indexing tax brackets, phased in from 2028. In the first three years, it would be partly funded by scrapping the $250 offset. That is an Opposition proposal, not law.

What to watch

The final version of LCR 2026/D5 is still to come. Its detail on which expenses reduce the deduction could change the sums for some workers.

The 2026–27 income year ends on 30 June 2027. The 14% rate and the $250 offset start on 1 July 2027, for 2027–28 returns.

MYEFO, due in December, will update the budget outlook, and the political debate over indexation and the future of the $250 offset looks set to continue.