What this ruling covers
The Australian Taxation Office (ATO) has released a draft ruling, LCR 2026/D5, explaining how the new standard deduction for work-related expenses operates under section 25-130 of the Income Tax Assessment Act 1997.
The ruling is a draft only. It is open for public comment and has not yet been finalised.
The standard deduction
From the 2026-27 income year, Australian tax residents who earn assessable labour income - including wages and salary - are able to claim a standard deduction of up to $1,000 for work-related expenses without keeping receipts or substantiating the claim.
Workers whose genuine work-related expenses exceed $1,000 are able to claim the full actual amount instead. If the full actual amount is claimed, the standard deduction drops to zero. The two options cannot be combined.
How the draft ruling status affects you
Because this is a draft ruling, the ATO will not charge interest or penalties to a taxpayer who relies on it in good faith if the ruling later turns out to be incorrect. However, any correct amount of tax that is owed may still need to be paid.
Interaction with other rules
The ruling also covers how the standard deduction interacts with:
- Depreciation rules for equipment
- Fringe benefits tax (FBT) obligations for employers, including the otherwise deductible rule and certain FBT exemptions
Employers who provide expense payment fringe benefits or run salary packaging arrangements are directed to Part C of the ruling for detail on how these arrangements are affected from 1 July 2026.
Laundry expenses
Appendix 2 of the ruling sets out a specific ATO compliance approach and record-keeping requirements for laundry expense claims from 1 July 2026.
Key actions
- Employees and sole traders earning wages or salary: from 1 July 2026, a claim of up to $1,000 in work-related expenses without receipts is available. This applies automatically in the 2026-27 tax return.
- Workers whose work-related expenses genuinely exceed $1,000: receipts and records are required to substantiate the full actual amount. If the actual amount is claimed, the $1,000 standard deduction does not apply.
- Employers providing expense payment fringe benefits or running salary packaging arrangements: Part C of the ruling covers how the otherwise deductible rule and certain FBT exemptions operate from 1 July 2026.
- Laundry expense claims from 1 July 2026: refer to Appendix 2 of the ruling for the ATO compliance approach and record-keeping requirements.
- To comment on the draft ruling before it is finalised, see Appendix 3 of the ruling for submission instructions. No submission deadline is stated in the source - check the ATO website for current details: LCR 2026/D5 on the ATO website.
This is a plain-English summary for information only, not legal or compliance advice. Always check the official source or consult a qualified professional.