If you’re an employee who claims work-related expenses each year, there’s a change on the horizon worth knowing about now, even though it won’t affect this year’s tax return.

The Government has released draft legislation to introduce a standard deduction of up to $1,000 for work-related expenses, available to eligible individuals from 1 July 2026 (i.e. the 2027 income year). It’s being promoted as a cost-of-living measure designed to cut red tape and make tax time simpler. The detail, however, is more nuanced than the headline, and there are a few traps worth understanding early.

When does this actually start?

Not this year. Your 2026 tax return (for the year ending 30 June 2026) is unaffected. You’ll need to keep your receipts and substantiate your work-related expense claims exactly as you do now.

The standard deduction only becomes available from the 2027 income year onward. The reason it’s worth understanding now is simple: how you keep records from 1 July2026 could materially affect how much you can claim.

Who will be eligible?

The standard deduction will be available to Australian tax residents who derive assessable labour income; broadly, salary and wages, director's fees, payments to officeholders, religious practitioners, return-to-work payments, termination payments, and parental leave pay.

Importantly, not everyone qualifies. The proposed rules specifically exclude:

• Sole traders, in respect of their business income
• Independent contractors paid under an ABN who fall outside the PAYG withholding rules;
• Labour hire workers subject to PAYG withholding under the specific labour hire provisions;
• Individuals with Personal Services Income (PSI) attributed from a personal services entity; and
• Individuals who only derive investment income (rental, interest, or dividends) with no labour income.

If your income comes solely from one of these sources, the standard deduction simply won’t be relevant to you, your work expense claims (if any) will continue to be assessed under the existing rules.

How much can you actually claim?

The deduction is the lesser of $1,000 and your total assessable labour income for the year. So, if you earned less than $1,000 in labour income for the year, your standard deduction is capped at that lower figure.

Where it gets more interesting is how the $1,000 interacts with expenses you’ve actually incurred.

If your real work expenses are under $1,000

You get a choice. Say your genuine, deductible work-related expenses for the year come to $450. You can either:

• Claim the $450 (subject to the normal substantiation rules) and still receive the benefit of the remaining $550 of standard deduction, landing on the full $1,000 either way; or
• Skip the receipts altogether and simply claim the full $1,000 standard deduction

Either path gets you to the same $1,000 outcome; the only difference is whether you bother proving the $450.

If your real work expenses are $1,000 or more

This is where the proposed rules currently bite. Based on the draft legislation as released, if your deductible work expenses are $1,000 or more, the standard deduction won’t apply at all; you’d simply claim your actual substantiated expenses under the existing rules, in full.

In other words, as currently drafted, there's no “claim $1,000 standard plus the excesson top” option for higher claimants; it’s substantiated actuals, in full, once you cross the $1,000 line. The NTAA has made a submission to Government recommending that taxpayers in this position be given the option to simply cap their claim at $1,000 without substantiation, but this is not yet confirmed in the legislation.

What expenses actually count toward the $1,000?

Thestandard deduction is designed to cover the everyday work expenses most employees already claim, including:

• Work-related travel costs (airfares, taxis, meals, accommodation, incidentals) for overnight work travel;
• Self-education expenses connected to your role;
• Car expenses claimed under the cents-per-kilometre or logbook methods;
• Travel between two unrelated jobs;
• Decline in value (depreciation) on work-related equipment, and balancing adjustments when that equipment is disposed of;
• Repairs to work-related premises or equipment; and
• COVID-19 test costs incurred to attend work.

What can still be claimed on top of the $1,000?

Somedeductions sit outside the standard deduction entirely and can be claimed in full, regardless of whether you take the standard deduction. These include;

• Tax agent fees and other tax-related expenses;
• Gifts and donations;
• Interest, dividend and investment-related deductions;
• Rental property deductions;
• Income protection, personal sickness and accident insurance premiums; and
• Union and professional association membership fees.

A few related changes to be aware of

The draft legislation doesn’t stop at the $1,000 deduction itself. A handful of related changes are proposed alongside it, also from 1 July 2026 (with FBT changes from1 April 2027);

• Some substantiation exceptions will disappear. The current concessions allowing claims without receipts — for work expenses under $300, laundry expenses under $150, and certain award transport payments — are proposed to be removed. If your expenses end up at $1,000 or more (and the standard deduction doesn’t apply), you’ll need full written evidence for reverything, including laundry.
• Low-value pooling will be restricted for work assets. From 1 July 2026, you won’t be able to allocate a new work-related depreciating asset under $1,000 to a low-value pool. Existing pooled assets as at 30 June 2026 are unaffected.
• A 50% balancing adjustment option is proposed for work assets disposed of after benefiting from the standard deduction, recognising that detailed private-use records may not have been kept;
• Salary-packaged work items lose their FBT exemption from 1 April 2027 (laptops, tools of trade, protective clothing provided via salary packaging), though the current “one item per employee per year” restriction is proposed to be lifted for non-salary-packaged items.

What this means for you right now

Nothing changes for your 2026 tax return. But it’s worth starting to think about how this might play out for 2027, particularly if your annual work expenses usually sit close to that $1,000 mark; a relatively small change in your spending pattern could shift you from “claim everything, keep every receipt” to “skip the paperwork entirely,” or vice versa.

If you’d like to understand how the proposed standard deduction is likely to affect your specific circumstances, including whether it’s worth adjusting how you track expenses from 1 July 2026, get in touch with our office. We’re keeping a close eye on this legislation as it moves through Parliament and will keep clientsupdated as the detail is finalised.

This article is general in nature and based on draft legislation that had not be enenacted at the time of writing. It does not constitute tax advice. The final legislation may differ from what is described here; speak with us about how these proposed changes may apply to you.