A new deduction that simplifies tax time for millions of Australians is now law. From the 2026-27 income year (meaning returns lodged from July 2027 onwards) employees and sole traders can claim a flat $1,000 deduction for work-related expenses without keeping a single receipt.

The measure was announced in the 2026-27 Federal Budget and received royal assent on 26 June 2026, legislated as Schedule 4 of the Treasury Laws Amendment (Tax Reform No. 1) Act 2026. It applies to income earned from 1 July 2026 onwards. It does not apply to the 2025-26 return you are lodging now – that return continues to use the existing rules.

How the deduction works

The $1,000 instant deduction is a standard deduction that replaces the need to itemise individual work-related expenses up to that amount. When you lodge your 2026-27 tax return (from July 2027), you simply elect to claim the standard deduction and your taxable income from work is reduced by $1,000, with no receipts or records required.

Importantly, the deduction is optional, not automatic. At the time of lodgement, you choose which approach gives you the better outcome:

• Use the instant deduction: Claim $1,000 with no receipts or records required. This is straightforward and will suit anyone whose actual work-related expenses are $1,000 or less.
• Itemise actual expenses: If your actual work-related expenses exceed $1,000, you can continue to claim the higher amount in the usual way with substantiation. The $1,000 is a floor, not a cap.

Who benefits most

Treasury estimates that approximately 6.2 million workers – around 42% of all taxpayers – will benefit from the instant deduction. The average saving is approximately $205 per year.

The deduction is most beneficial for individuals who currently claim small amounts of work-related expenses such as a portion of phone costs, a small amount of office supplies, or minimal work clothing, where the effort of collecting and substantiating receipts has historically exceeded the tax saving involved. For these individuals, the instant deduction eliminates the compliance burden entirely.

The saving from the deduction depends on your marginal tax rate. The $1,000 deduction reduces taxable income by $1,000, so:

• At the 16% rate (income $18,201 to $45,000, noting this drops to 15% from 1 July 2026): Saving of approximately $160
• At the 30% rate (income $45,001 to $135,000): Saving of $300
• At the 37% rate (income $135,001 to $190,000): Saving of $370
• At the 45% rate (income above $190,000, before Medicare levy): Saving of $450
  

What expenses the deduction covers

The instant deduction is designed to cover common work-related costs that employees incur during the year. The deduction covers the same categories of expenses that can currently be claimed under the substantiation rules:

• Home office running expenses (electricity, internet, phone costs)
• Work-related phone and device costs
• Tools and equipment used for work
• Work clothing and protective equipment (where eligible)
• Self-education expenses directly related to current employment
• Work-related travel expenses (other than car expenses, which have their own rules).
  

What the deduction does not cover

The $1,000 instant deduction applies specifically to work-related expenses. Certain other deduction categories are available in addition to the instant deduction and are not affected by the choice between the two methods:

• Charitable donations to deductible gift recipients
• Tax agent fees
• Interest charged by the Tax Office
• Other deductions that are separately deductible under tax law
  
  

These deductions can be claimed on top of whichever work-related deduction method you choose.

Should you still keep records?

Even though the instant deduction requires no receipts for the first $1,000, keeping records during the year remains good practice. The reason is simple: you choose your deduction method at lodgement time, not during the year. If your actual work-related expenses turn out to exceed $1,000, you will want to have the records to support a higher claim.

The ATO has also reminded taxpayers that the instant deduction does not change the compliance focus on work-related claims. They will continue to scrutinise returns where claimed expenses appear inconsistent with employment arrangements. Where a taxpayer elects to itemise expenses above $1,000, those claims must still be fully substantiated.

Important: This does not apply to your current return

The $1,000 instant deduction applies to the 2026-27 income year - the year that began on 1 July 2026. The first tax return that will include this deduction is the 2026-27 return, lodged from July 2027 onwards.

The 2025-26 return that most individuals are lodging right now continues to use the existing rules. All work-related expenses in the current return must be substantiated in the usual way.

Worth checking before you lodge your 2025-26 return

If your work-related expenses for 2025-26 are close to $1,000, it is still worth gathering your records and calculating whether itemising produces a better result. The instant deduction is not available this year, so every legitimate claim should be captured now while the substantiation rules apply.

Please contact us if you have any questions - email us or phone our team on 02 9899 3044.