New tax cuts for Australian workers

2026–27 AUsTRALIAN TAX REFORM

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Working Australians

As part of the 2026–27 Federal Budget, the Australian Government has announced two key tax relief measures targeting Australian workers and sole traders, designed to simplify tax returns and deliver permanent cost-of-living support. Below is a summary of the rule changes and how they apply.

Download Budget Document

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1. A$1,000 Standard Deduction for Work-Related Expenses

Effective from: 1 July 2026 (2026–27 income year)

Who is eligible?

Australian tax residents who earn employment income (salary and wages with PAYG withholding). This measure currently does not apply to sole traders or those earning only business/investment income.

Core rules

● You can claim up to A$1,000 as a standard deduction for work-related expenses, without needing to itemise or keep receipts for each expense.

● If your actual work-related expenses exceed A$1,000, you may still claim the full amount under existing rules, but you will need to retain full records and substantiation as before.

● The standard deduction applies only to work-related expenses. Charitable donations, union fees, professional association memberships and other non-work-related deductions can still be claimed separately on top of the A$1,000 standard deduction.

2. Working Australians Tax Offset (WATO)

Effective from: 1 July 2027 (2027–28 income year)

Amount: A$250 per year, permanent

Who is eligible?

● Employees earning salary and wages

● Sole traders earning business income

● Applies to income derived from work

Core rules

● This is a non-refundable tax offset that directly reduces your income tax liability.

● It will be automatically calculated and applied by the ATO when you lodge your tax return, and no separate application is required.

● The offset raises the effective tax-free threshold for work-derived income by approximately A$1,800.

● It applies in addition to existing legislated tax cuts and the A$1,000 standard deduction.

Summary of Measures	A$1,000 Standard Deduction	Working Australians Tax Offset
Start date	1 July 2026	1 July 2027
Type	Deduction (reduces taxable income)	Tax offset (reduces tax payable directly)
Applies to employees	✅	✅
Applies to sole traders	❌	✅
Receipts required	No (up to A$1,000)	N/A – automatic

3. Income Tax Rate Cut

The Budget confirmed the ongoing rollout of the Government’s previously legislated tax relief package. Individual taxpayers can look forward to guaranteed, structural cuts to the second marginal tax bracket over the next two financial years:

Taxable income thresholds (A$)	2025-2026 income year	2026-2027 income year	2027-2028 income year
0 – 18,200	Tax – free	Tax – free	Tax – free
18,201 – 45,000	16%	15%	14%
45,001 – 135,000	30%	30%	30%
135,001 – 190,000	37%	37%	37%
190,001 and over	45%	45%	45%

Source: Tax rates – Australian resident | Australian Taxation Office

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