Supporting household income pressures

The 2026–27 Federal Budget includes a number of proposed changes aimed at supporting individuals, particularly those on low to middle incomes.

Key measures include:

• A standard $1000 tax deduction for workers and sole traders
• A new Working Australians Tax Offset (WATO)
• An increase in Medicare levy low-income thresholds

Standard Deduction for Work Expenses

The Government has announced a “Standard Deduction” from 1 July 2026 that will allow workers to lower their taxable income from work by $1,000 without keeping receipts when they lodge their tax return, making tax time simpler. The Government believes that 42% of taxpayers will benefit from this minimum deduction, but the reduced tax benefit won’t be received until lodgement of their tax return after 30 June 2027.

From 1 July 2026, workers and sole traders will have the choice to claim:

• A “Standard Deduction” of $1,000 to cover all their work-related expenses (although workers earning less than $1,000 will have their deduction capped at the amount of income received); or
• Keep receipts and claim actual work-related expenses if they exceed $1,000.

The Standard Deduction will cover all work-related expenses, including car, travel, and self-education expenses; however, Union fees and Professional Association fees can still be claimed separately.

There is no change to other non-work-related expense claims such as donations, income protection insurance, tax agent fees & investment deductions.

The proposed $250 Working Australians Tax Offset

From 1 July 2027, the Government proposes to introduce:

• An annual $250 tax offset for eligible workers
• Applied automatically via tax returns
• Applicable to employment income and eligible business income

What’s the potential impact?

If enacted, the offset may:

• Increase the effective tax-free threshold for some taxpayers
• Provide modest additional income support, particularly for lower-income earners

The overall benefit will depend on individual income levels and eligibility for other offsets.

Medicare levy threshold increases

From 1 July 2025, the Budget includes increases to low-income thresholds of approximately 2.9%, including:

• Singles: $27,222 → $28,011
• Families: $45,907 → $47,238
• Higher thresholds for seniors and pensioners

Why this matters

These changes may:

• Reduce or remove the Medicare levy for eligible taxpayers
• Help maintain thresholds in line with income growth

Combined effect

Together, these measures are designed to:

• Improve after-tax income for some individuals
• Provide targeted support amid rising living costs
• Adjust thresholds to reflect economic conditions

Planning considerations

While relatively modest in isolation, these changes may still influence:

• Personal tax planning
• Household budgeting
• Sole trader income structuring

Our perspective

These proposals form part of a broader policy approach to support workforce participation and household resilience. While outcomes will vary, understanding how these measures interact with your overall tax position may help optimise your personal tax outcomes.

Contact our team to discuss your personal tax position in light of these proposed changes.