Schedule 4 of the Treasury Laws Amendment (Tax Reform No. 1) Bill 2026 introduces a $1,000 standard deduction for work-related expenses for Australian resident individuals who earn labour income. The measure is designed to simplify tax returns by allowing eligible taxpayers to claim a fixed deduction instead of substantiating and claiming individual work-related expenses.
Available to individuals who are Australian tax residents and derive assessable labour income. Assessable labour income consists generally of amounts included in assessable income from which PAYG withholding is required under specified withholding provisions. It includes:
i) Parental leave pay subject to withholding
ii) Payments to employees (salary and wages)
iii) Payments to company directors
iv) Payments to office holders
v) Payments to religious practitioners
vi) Return-to-work payments
vii) Employment termination and retirement payments covered by Subdivision 12-C, Schedule 1 of the Taxation Administration Act 1953
Eligible taxpayers can choose to claim a $1,000 standard deduction rather than claiming actual deductible work-related expenses.
The deduction is intended to reduce record-keeping and compliance burdens for employees and other labour-income earners. Taxpayers expecting deductible work-related expenses may still choose to claim actual expenses under the ordinary rules. Where the amount claimed is less than the standard deduction, the standard reduction is reduced accordingly so that the total claim does not exceed $1,000.
Where the actual amount claimed exceeds the standard deduction total of $1,000 the standard deduction is reduced to nil. The following examples taken from the Explanatory Memorandum explain this interaction:
Assume Nicky has assessable labour income of more than $1,000 and has incurred the following expenses and claims them in his tax return:
• $200 in work from home expenses;
• $50 in stationery that is required for his job;
• $50 for a work-related subscription;
• $150 for travelling between workplaces;
• $50 for a charitable donation; and
• $150 for payment to a tax agent to complete his income tax return;
The total amount of expenses covered by the standard deduction is $450. The charitable donation and costs for managing tax affairs are not expenses covered by the standard deduction and may be claimed in addition to the standard deduction. Therefore, Nicky receives the $1,000 standard deduction, but the operation of receiving the standard deduction is that the $450 work-related expenses reduce the $1,000. Effectively, Nicky is only receiving $550 of the total standard deduction, because the expenses covered by the standard deduction are also claimed.
Assume the same facts as example 4.1 but Nicky chooses not to claim his $450 expenses covered by the standard deduction in his income tax return. Nicky receives the $1,000 standard deduction.
In addition, Nicky will need to claim the donation and costs for managing tax affairs expenses to receive these deductions.
Assume Nicky has incurred $1,050 expenses that are covered by the standard deduction. If Nicky decides to include the $1,050 deductions in his income tax return the standard deduction that he would otherwise receive will be reduced to nil.
However, Nicky can choose not to include the $1,050 deductions in his income tax return and he will instead receive the total available standard deduction of $1,000.
Where an expense payment fringe benefit is an expense covered by the standard deduction and provided to an employee under a salary packaging arrangement, the amendments ensure the otherwise deductible rule does not apply to reduce the taxable value of the expense payment fringe benefit.
Specifically, the otherwise deductible rule in section 24 of the FBTAA does not apply where the benefit is provided to an employee under a salary packaging arrangement and the gross deduction is covered by one of the items under new paragraphs 25-130(2)(c) to (g) of the ITAA 1997 being:
i. general deductions,
ii. deductions for travelling between a work place or car expenses,
iii. repairs,
iv. deductions for depreciating assets, balancing adjustments or COVID – 19 tests.
This ensures that any benefit received from entering into salary packaging arrangements would be removed as the employer will be assessed on the full taxable value of the expense payment fringe benefit provided under the FBTAA – provided no other exemption or reduction in taxable value otherwise applies.
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