In the lead-up to the Australian federal election, the Australian Labor Party (ALP) promised to provide a A$1000 standard deduction for work expenses. After winning a large majority in the House of Representatives, the ALP will now have to work out how to implement this measure. Easy, isn’t it?

Not really. 

While there have been many reviews of the Australian tax system that have recommended the implementation of a standard tax deduction, the Henry Tax Review being the most notable, there are still many details that need to be worked out, such as what expenses a taxpayer won’t be able to deduct if they claim the A$1000 standard deduction, how it will interact with other provisions of the tax act and whether the standard deduction should be indexed.

What was announced

From 1 July 2026, Australian taxpayers with work-related expenses will have a choice. They can automatically claim a A$1000 standard deduction (regardless of whether they actually have any work-related expenses and without substantiation) or they can continue to substantiate their expenses. 

What will the standard deduction cover?

Donations will continue to be deductible in addition to the standard deduction, but it is not clear whether all work-related deductions will be denied if a standard deduction is claimed.

For example, there are good policy reasons to allow taxpayers to continue to claim education costs separately. The Henry Review argued that tuition costs should be excluded from the proposed standard deduction because they are “… an essential part of human capital development and a significant contributor to economic outcomes for all Australians… particularly when structural change in the economy makes retraining essential for sustainable employment”.

This is as true today as it was when it was written more than 15 years ago. 

Consideration should also be given to whether expenses associated with reasonable allowances should be excluded. Such costs could rapidly reach the A$1000 threshold, forcing the taxpayer to document all work-related expenses which could be small compared with the costs of travelling for work. A similar argument arises in relation to car expenses – the United States allows taxpayers to claim those in addition to the standard deduction.

Interactions with other tax provisions

Currently there are a number of provisions or commissioner guidance that make substantiation easier for taxpayers, for example: cents per kilometre travelled, the fixed-rate method of calculating work-from-home expenses and laundry allowance calculations. 

The government announcement indicates that 39% of taxpayers have work-related expenses of less than A$1000. That leaves 61% of taxpayers still needing to substantiate their expenses, many relying heavily on the existing substantiation provisions. Because the majority of taxpayers will need to apply substantiation concessions, these concessions will need to continue. 

More complicated interactions that need consideration include how the standard deduction will interact with the ‘otherwise deductible’ rule in the Fringe Benefits Tax Act and whether personal service income rules will also be affected by the standard deduction. It will be interesting to see where Treasury and the government land on these issues. 

Indexation

Much is written in the press about the effect of bracket creep – that is, inflation pushing people into higher tax brackets. However, inflation also reduces the impact of concessions. 

The A$300 substantiation concession in section 900-35 has halved in value since it was introduced, due to inflation. To ensure the underlying policy objective of the A$1000 standard deduction is not lost due to the combination of inflation and the passage of time, it is important that the A$1000 threshold be indexed.

Take away

To read CA ANZ’s May 2025 in-depth paper on the A$1000 standard deduction – ‘A Deep Dive Into a Standard Deduction’ – click here.