The ATO has released a draft Law Companion Ruling, LCR 2026/D5, setting out how it expects the new standard deduction for work-related expenses to operate. Tax bulletins report the draft was issued on Friday 28 August, with comments open until 9 October 2026. It is worth a look for employers, employees and anyone who pays themselves a wage from their own company.

What is the standard deduction?

From the current income year, the one ending 30 June 2027, eligible Australian tax residents who earn assessable labour income would be able to claim a standard deduction of up to $1,000 for work-related expenses. Based on the ATO's published guidance:

  • The maximum is the lower of $1,000 or your total assessable labour income for the year.
  • You would not need to have spent the money, or kept receipts, to be entitled to it.
  • The maximum is reduced by certain work-related expenses you choose to claim in your return, so it works as an alternative to itemising small claims, not a bonus on top of them.
  • It would first appear in tax returns lodged after 30 June 2027. It does not affect the return you are lodging right now.

One important caution: this is draft guidance, and commentary on the measure notes the supporting legislation had not yet passed at the time of release. Details could change.

The catch for sole traders

The deduction is tied to labour income such as salary and wages and directors' fees. The ATO's guidance says it will not apply if you only earn other types of income, such as dividend income or business income. So if you are a sole trader with no wage income, the standard deduction is not expected to help you. Your business expenses continue to be claimed the usual way, with records.

If you run your business through a company and pay yourself a salary or directors' fees, that income is the kind the measure is aimed at.

What to do now

  • Keep your records this year anyway. If your genuine work expenses are above $1,000, itemising will still give you a better result, and you can only do that with evidence.
  • Employers: expect questions. Staff may ask whether they still need receipts. The safe general answer is yes, until the law is settled and they know which method suits them.
  • Do not change this year's return. Returns for the year ended 30 June 2026 follow the existing rules.
  • Have a say. If you or your adviser see practical problems in the draft, the ATO is taking comments.

This article is general information only. Speak with your accountant about your own circumstances.