The Government has proposed an instant $1,000 tax deduction for Australian salary and wage earners from 1 July 2026.
The instant tax deduction, if enacted, is an option to replace work-related expense claims in individual tax returns. With over $26 billion claimed each year, work-related expenses are the single largest category of deduction claimed.
The Parliamentary Budget Office estimates that the first year cost of the measure is around $1.24 billion to the budget bottom line, assuming that all those who currently make a claim for less than $1,000 would select this option. However, this does not take into account any savings over time from removing a very long administrative tail – 41% of people claimed under $1,000 in 2022, making up only 7% of the total amount claimed. The bulk of the work-related expense claims, the 93%, are over the $1,000 instant deduction amount.
Given the value of most claims are well above the $1,000 instant deduction on offer, the Government is seeking to remove the cost of administering the volume of small claims and simplify administration for over 4 million people.
The $1,000 standard deduction covers work-related expenses that you have incurred but your employer has not reimbursed - such as working from home expenses, work tools, car expenses where you have travelled between work sites, phones and internet, and self-education.
If your expenses are likely to be above $1,000, you can continue to claim as you usually do. Each specific work-related expense claim you make will reduce the $1,000.
If you are close to the border line or your level of work-related expenses changes from year to year, it will be important to keep receipts throughout the 2026-27 income year just in case you need to claim the higher amount.
Other expenses such as charitable donations, income protection premiums, union or other trade, business or professional association memberships, will continue to be claimed on top of the instant tax deduction.
The instant tax deduction is not a rebate or refund. Tax deductions reduce the amount of tax you pay. For example, if your assessable income is $100,000, and you have no other expenses or deductions, the $1,000 would reduce your taxable income to $99,000. At a marginal tax rate of 30%, this would deliver a tax saving of $300.
From 1 July 2026, the instant deduction, if enacted, would be available to Australian tax residents who earn assessable income from work. This typically includes income from which an amount must be withheld under the withholding tax system.
For those earning less than $1,000 p.a., the deduction will be up to the amount earned.
For those consistently claiming under $1,000 of work-related expenses in their tax return each year, the instant deduction is an obvious choice. However, if there is a possibility that you might want to claim more than the $1,000 instant deduction, then you will need to keep all of your receipts.
And, there will be some amendments to how fringe benefits tax (FBT) operates to ensure that the ‘otherwise deductible rule’ does not apply to reduce the taxable value of an expense payment fringe benefit where the expense is covered by the instant deduction and provided to an employee under a salary packaging arrangement.
Treasury has released the draft legislation for consultation with a fast 10-day turnaround - just in time for the Federal Budget on 12 May 2026.
We’ll keep you up to date as changes occur.