Standard $1,000 deduction for work-related expenses

The ATO has issued a draft Law Companion Ruling (LCR 2026/D5) which sets out how the standard deduction of up to $1,000 for work-related expenses under section 25-130 of the ITAA 1997 operates.
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Section 25-130 allows for a standard deduction of up to $1,000 for an income year for work-related expenses for individuals who derive assessable labour income without substantiation. An individual doesn't need to incur or substantiate expenses to be entitled to the standard deduction, they only need to record their assessable income at the correct labels when they lodge their tax return.

Taxpayers who have more than $1,000 of work-related expenses and who don't want to limit the deduction to $1,000 will need to substantiate their deductible expenses.

The ruling explains:

• Who is eligible to receive the standard deduction
• How the amount of the standard deduction is worked out
• Which specific deductions reduce the standard deduction
• Which deductions can still be claimed separately
• How it interacts with the capital allowance rules and FBT.

Certain expenses do not form part of the standard deduction, and written evidence is required to substantiate these, such as:

• Income protection insurance premiums
• Personal sickness insurance premiums
• Accident insurance premiums
• Membership of a trade, business or professional association.

The introduction of the standard deduction also replaces the substantiation requirements for laundry expenses up to $150. However, the draft ruling explains a proposed compliance approach for laundry expenses that would apply from the 2026-27 income year onwards. The draft ruling provides that the ATO will accept a method for calculating laundry expenses (but not dry-cleaning costs) that applies from 1 July 2026, being $1 for a full load of work-related laundry, 50c for a mixed load, if appropriate records are kept and the laundry expenses are deductible for the individual.

For more information see here.