Returning cash to Australian pockets through targeted relief

Addressing the cost-of-living crisis was considered a priority heading into the 2026 Federal Budget. The Government’s approach for workers takes the form of:

• A new $250 Working Australian Tax Offset
• A new $1,000 instant tax deduction
• The continued reduction in the personal income tax rate.

The latter two measures are reannouncements of measures already flagged.

The new Working Australian Tax Offset

From 1 July 2027, the Government will introduce a new $250 Working Australian Tax Offset (WATO). Applied against income derived from wages, salaries, and sole trader business income, this is designed to encourage greater workforce participation and support working Australians in their battle against the rising cost of living. Notably, the Government intends for this measure to form a permanent feature of the tax system. Hence, whilst modest from the perspective of the individual, this promises to cumulatively decrease government receipts by $6.4 billion over the five years from 2025-26.

The WATO is intended to increase the effective tax-free threshold for income derived from work by nearly $1,800 to $19,985 (or up to $24,985 for workers eligible for the Low Income Tax Offset), which the Government boasts is the largest permanent increase in the effective tax-free threshold since 2012-13. Interestingly, the ATO is granted $10 million in additional funding to assist with its implementation.

Introducing the $1,000 instant tax deduction

Further to the introduction of the WATO, the Government has also announced a $1,000 instant tax deduction in the 2026-27 income year. This will be available to all Australian tax residents who earn income from and incur expenses on work. Under the reform, taxpayers will not be required to itemise and claim work-related expenses that fall within the provided $1,000 threshold. Other deductions, such as charitable donations and union or professional association fees, remain separately claimable. Similarly, taxpayers incurring expenses of more than $1,000 will be able to continue claiming them as usual.

We expect the proposed $1,000 instant tax deduction to have a more noticeable, practical impact than the WATO. By significantly reducing the need to track and substantiate work‑related expenses, it lessens the administrative burden on taxpayers and simplifies compliance. This approach should encourage a greater uptake of deductions while reducing friction within the tax system.

Following through on tax cuts

There were no further changes announced to the measure in this year’s Federal Budget, suggesting business as usual in respect of the changes already legislated in Federal Budget 2025. Under the Treasury Laws Amendment (More Cost-of-Living Relief) Act 2025, the resident personal income tax rate for the taxable income bracket from $18,201 to $45,000 will decrease from 16% to 15% for the 2026-27 income year, and then to 14% for the 2027-28 and later income years.

These changes reduce tax payable by up to $268 from 1 July 2026, rising to a maximum benefit of $536 from 1 July 2027.