In brief
This year’s budget contained measures related to personal income tax including a AUD 1,000 Instant Tax Deduction and a AUD 250 offset on work income.
Key takeaways
Key takeaways for changes to personal tax in the 2026-2027 Australian Federal Budget include:
- An instant tax deduction of up to AUD 1,000 for work related expense claims without the need to itemise expenses or keep receipts.
- A tax offset of AUD 250 for working Australians on work-derived income or business income for sole traders.
Instant Tax Deduction
As foreshadowed in the 2025-26 Mid-Year Economic and Fiscal Outlook, the Government has announced an “Instant Tax Deduction” of up to AUD 1,000 from the 2026–27 income year as part of its cost-of-living relief package. The measure implements a 2025 federal election commitment of the Labor Government.
Australian tax residents who derive employment income will be eligible and, where their total work-related expense claim is less than AUD 1,000, will not need to itemise those expenses or keep receipts when they lodge their tax return. The Instant Tax Deduction will not be available to taxpayers with more than AUD 1,000 of work-related expenses, or who earn only business or investment income.
Eligible taxpayers may still separately claim charitable donations, union or professional membership fees, as well as any other non-work related expenses in addition to the Instant Tax Deduction.
The Instant Tax Deduction is intended to simplify work-related expense deductions and reduce compliance costs, with eligible Australian workers projected to receive an average tax saving of AUD 205 through this measure.
Working Australians Tax Offset
The Government announced a new tax cut in the form of a AUD 250 Working Australians Tax Offset from the 2027-28 income year. This measure will provide a permanent annual tax offset for Australian tax residents for their income derived from work (i.e., wages and salaries), and the business income of sole traders, from 1 July 2027.
The Working Australians Tax Offset is intended to complement the tax cuts provided for in the 2024-25 Budget, and additional tax cuts described below. The combined effect according to budget estimates is the effective tax-free threshold will increase by AUD 1,785 to AUD 19,985 for workers (or to AUD 24,985 for workers receiving the Low Income Tax Offset) for income derived from work from 1 July 2027. This is on the basis that the tax offset cancels out AUD 250 of the tax that would otherwise be payable on the first slice of taxable income above the ordinary tax-free threshold.
The fiscal cost of this measure is intended to be offset by the Government’s new reforms to negative gearing and capital gains tax, as well as its new minimum tax on discretionary trusts. For more information on these measures, please see our related Budget Bites:
Prior Income Tax Cuts
The Australian Government also took the opportunity to reaffirm the impact of previously legislated tax cuts, which lowered the tax rate for the lowest taxable income band between AUD 18,201 and AUD 45,000 from 16% to 15%, effective from 1 July 2026, with a further drop to 14%, effective from 1 July 2027.
For taxpayers with a taxable income above AUD 45,000, the changes will result in a tax cut of AUD 268 from 1 July 2026, and AUD 536 from 1 July 2027 as compared to the 2025 to 2026 tax rates.
Below is a table comparing the changes to income tax for financial years ending in 2026, 2027 and 2028:
| Taxable income |
Tax on this income | ||
| 2025-2026 | 2026-2027 | 2027-2028 | |
| AUD 0 – AUD 18,200 |
Nil |
Nil |
Nil |
| AUD 18,201 – AUD 45,000 |
16c for each AUD 1 over AUD 18,200 |
15c for each AUD 1 over AUD 18,200 |
14c for each AUD 1 over AUD 18,200 |
| AUD 45,001 – AUD 135,000 | AUD 4,288 + 30c for each AUD 1 over AUD 45,000 |
AUD 4,020 + 30c for each AUD 1 over AUD 45,000 |
AUD 3,752 + 30c for each AUD 1 over AUD 45,000 |
| AUD 135,001 – AUD 190,000 | AUD 31,288 + 37c for each AUD 1 over AUD 135,000 |
AUD 31,020 + 37c for each AUD 1 over AUD 135,000 |
AUD 30,752 + 37c for each AUD 1 over AUD 135,000 |
| AUD 190,001 and over | AUD 51,638 + 45c for each AUD 1 over AUD 190,000 |
AUD 51,370 + 45c for each AUD 1 over AUD 190,000 |
AUD 51,102 + 45c for each AUD 1 over AUD 190,000 |
A copy of the Federal Budget papers can be found here.
Michelle Chen, and Nicholas Tse, Junior Associates, Jeremy Hyman, Head of Communications, and Sky Friend, Business Development Consultant, have contributed to this legal update.