In April 2025, Treasury released exposure draft legislation proposing a new standard deduction for certain individual taxpayers who predominantly derive salary and wage income for the financial year 1 July 2026 to 30 June 2027.
This proposed measure is expected to be included in the May 2026 Federal Budget, to be handed down on Tuesday, 12 May 2026.
If passed, the $1,000 standard deduction is proposed to operate as follows:
- A standard deduction of up to $1,000 for Australian tax residents earning income from work, starting from 1 July 2026.
- Keep current arrangements for people who have more than $1,000 in work-related expenses or earn only business or investment income.
- Allow some deductions to be claimed in addition to the standard deduction, including investment expenses, charitable donations and union and professional association membership fees.
The standard deduction is intended as a compliance-saving measure, allowing eligible taxpayers to claim a standard amount without the need to substantiate work-related expenses.
Taxpayers with more than $1,000 in genuine work-related expenses may continue to itemise and substantiate their claims in line with existing rules, and their standard deduction is reduced to zero.
What you can still claim outside the standard deduction
Importantly, certain deductions remain available even if the standard deduction is claimed.
Deductions that may be claimed in addition to the $1,000 standard deduction include:
- Deductions that are not in connection with earning assessable labour income, such as interest income deductions;
- Specific deductions such as for gifts or contributions and costs of managing your tax affairs; and
- Deductions for:
- Income protection, personal sickness and accident insurance premiums; or
- Payments for membership of a union or other trade, business or professional association.
The exposure draft legislation provides the following example:
Example: Nicky’s work-related expenses are less than $1,000
Assume Nicky has incurred the following expenses and claims them on their tax return:
- $200 in work-from-home expenses;
- $50 in stationery that is required for their job; and
- $50 for a work-related subscription.
Standard deduction for work-related expenses:
- $150 for travelling between workplaces;
- $50 for a charitable donation; and
- $150 for payment to a tax agent to complete their income tax return.
The total amount of expenses covered by the standard deduction is $450.
The charitable donation of $50 and costs for managing tax affairs, totalling $150, are not expenses covered by the standard deduction and may be claimed in addition to the standard deduction.
As a result, while Nicky qualifies for the $1,000 standard deduction, the deduction is reduced by the $450 of work-related expenses.
Option one
Effectively, Nicky is only receiving $550 of the total standard deduction because the expenses covered by the standard deduction are also claimed.
Alternative option two
Alternatively, if Nicky chooses not to claim the $450 expenses covered by the standard deduction in her income tax return, in the 2026-27 year, Nicky can receive the $1,000 standard deduction in her income tax return.
Treasury have requested submission to the above draft rules prior to May 2026. A subsequent Nexia publication will address any changes made in the upcoming May 2026 Federal Budget to the above measures.
Subject to the passage of legislation, the standard deduction would apply from the 2026-27 income year onwards.
Next steps
Navigating proposed tax changes can be complex. We can help you understand how these measures may affect your tax planning.
Contact your local Nexia Advisor today to discuss your circumstances and arrange a planning review before 30 June.
