The 2026–27 Federal Budget delivered two new tax cuts that show up in different places on your return: a $1,000 instant tax deduction from the 2026–27 income year, and a $250 Working Australians Tax Offset (WATO) from the 2027–28 income year. Together with the tax cuts already legislated, an Australian worker on average earnings could be up to $2,816 a year better off by 2027–28 compared with 2023–24 settings, according to Federal Budget.
This article explains exactly what each measure does, who qualifies, and what you should bring to your accountant at tax time.
What is the $1,000 instant tax deduction?
From the 2026–27 income year, Australian tax residents who earn income from work are eligible for an automatic deduction of up to $1,000 against that income, without needing to itemise individual work-related expenses.
If your total work-related expenses for the year are less than $1,000, you simply claim the $1,000 instant deduction — no receipts, no logbooks, no diary entries. If your expenses are more than $1,000, you continue claiming them in the usual way, supported by records.
The Government estimates the change will deliver lower, simpler taxes for 6.2 million workers with an average tax benefit of $205, and reduce compliance costs by around $380 million a year.
When does the $1,000 instant deduction start?
The $1,000 instant tax deduction applies from the 2026–27 income year in other words, from 1 July 2026 onward. You’ll be able to claim it for the first time in the return you lodge after 30 June 2027.
What is the Working Australians Tax Offset (WATO)?
The WATO is a permanent annual tax offset of up to $250 for income derived from work — wages, salaries, and the business income of sole traders from the 2027–28 income year onward. It’s paid automatically as part of your tax return.
The WATO lifts the effective tax-free threshold on work income to $19,985 (or up to $24,985 for workers also eligible for the Low Income Tax Offset). According to the Government, this is the largest permanent increase to the effective tax-free threshold since 2012–13.
Government estimates: more than 13 million Australian workers will benefit, including around 6.3 million women in 2027–28.
Do sole traders get the $250 WATO?
Yes. The WATO explicitly applies to the business income of sole traders, not just employees. If you operate a business in your own name (rather than through a company or trust), your business income counts as “income derived from work” for the purposes of the offset.
Sole traders are also eligible for the $1,000 instant tax deduction — the same rule applies to your work-related expenses as an employee.
Can I still claim charity, union and professional fees?
Yes. The $1,000 instant deduction sits alongside, not on top of, your work-related expenses. The following deductions can still be claimed in the usual way, on top of the instant deduction:
- Gifts and donations to deductible gift recipients (DGRs).
- Union and professional association membership fees.
- Costs of managing your tax affairs (including tax agent fees).
- Personal superannuation contributions (where eligible).
- Income protection insurance premiums (where eligible).
Anything that is not a work-related expense is unaffected by the new $1,000 cap. If you take the instant deduction, you’re only foregoing the ability to claim itemised work-related expenses (such as uniforms, tools, or work-from-home costs).
How much tax will I actually save?
For an Australian worker on average earnings ($81,245), the combined effect of the legislated tax cuts plus the instant deduction is estimated by the Government at up to $2,816 per year from 2027–28 compared with 2023–24 settings. The exact saving for any individual depends on their income, marginal rate, work-related expenses, and Medicare levy position.
A rule of thumb for the WATO: it’s a non-refundable offset, so you need enough tax payable to soak it up. Most workers will receive the full $250 benefit. For very low-income earners whose tax payable is already wiped out by the Low Income Tax Offset, the WATO benefit can be smaller.
The Government has published an interactive tax cut calculator that estimates your individual benefit.
What are the new Medicare levy thresholds for 2025–26?
From 1 July 2025, the Medicare levy low-income thresholds were increased by 2.9 per cent. The new thresholds:
- Singles: $28,011 (up from $27,222).
- Family: $47,238 (up from $45,907).
- Single seniors and pensioners: $44,268 (up from $43,020).
- Family seniors and pensioners: $61,623 (up from $59,886).
- Family threshold uplift per dependent child or student: $4,338 (up from $4,216).
The thresholds exempt low-income individuals and families from paying the Medicare levy. Details and worked examples are available on the ATO Medicare levy page.
What should working Australians do at tax time?
Three practical steps:
- Track your work-related expenses for 2026–27. If they’re under $1,000, you’ll take the instant deduction. If they’re over $1,000, you’ll itemise as usual. Either way you need to know the number.
- Keep charity, union and professional fee receipts separately. These don’t fall under the $1,000 cap and you don’t want to miss them.
- Use a registered tax agent if you’re unsure. For most workers the instant deduction is straightforward, but the interaction with the WATO, Medicare levy, LITO and existing tax cuts is layered. A tax agent will ensure the right combination is applied.
