Overview
The Australian Taxation Office (ATO) has released draft ruling LCR 2026/D5, which explains how a new standard deduction for work-related expenses operates under section 25-130 of the Income Tax Assessment Act 1997. This is a draft for public comment and represents the ATO's preliminary view only. The final ruling has not yet been issued.
The Standard Deduction
From 1 July 2026, Australian tax residents who earn assessable labour income are able to claim a standard deduction of up to $1,000 for work-related expenses. The standard deduction does not require receipts or substantiation of claims.
If a claimant chooses to claim more than $1,000 in actual work-related expenses, full substantiation is required and the standard deduction reduces to zero. The two approaches cannot be combined.
Interaction with Other Rules
Depreciation of Work Equipment (Division 40)
The ruling covers how the standard deduction interacts with decline in value deductions, balancing adjustments, and low-value pools under Division 40 capital allowances. These interactions are addressed in Part B of the ruling.
Fringe Benefits Tax and Salary Packaging
The ruling addresses how the standard deduction affects fringe benefits tax (FBT) rules for employers, including salary packaging arrangements and the otherwise deductible rule for expense payment fringe benefits. These interactions are addressed in Part C of the ruling.
Laundry Expenses
The ruling includes a specific compliance approach for laundry expenses from 1 July 2026, covering how to calculate and record laundry expense claims. This is set out in Appendix 2 of the ruling.
Key Actions
- Employers with salary packaging arrangements or who provide expense payment fringe benefits are directed to review Part C of LCR 2026/D5, as the otherwise deductible rule and FBT exemptions for work-related items are directly affected by this change.
- Employers with employees who claim work-related expenses are directed to inform those employees that from 1 July 2026 they can claim up to $1,000 without receipts, but claiming more than $1,000 requires full substantiation of all claims and reduces the standard deduction to zero.
- Those with employees who claim laundry expenses are directed to check the compliance approach in Appendix 2 of the ruling for how to calculate and record laundry expense claims from 1 July 2026.
- Those with employees who depreciate work tools or equipment under Division 40 capital allowances are directed to review Part B of the ruling.
- Interested parties are able to submit comments on this draft ruling to the ATO. The submission deadline and contact details are available in Appendix 3 of the ruling and on the ATO legal database.
This is a plain-English summary for information only, not legal or compliance advice. Always check the official source or consult a qualified professional.