NTAA calls for greater clarity on WRE draft ruling

An estimated 6.2 million workers, or 42 per cent of taxpayers, are set to benefit from the $1,000 standard deduction for work-related expenses (WRE) in the 2026–27 income year.

In its submission to the ATO on its draft Law Companion Ruling LCR 2026/D5, The standard deduction for work-related expenses, the National Tax & Accountants’ Association (NTAA) raised concerns that the ruling fails to mention three pay-as-you-go (PAYG) withholding provisions that are excluded from what constitutes assessable labour income.

Assessable labour income does not include income derived by individuals from which an amount must be withheld under the PAYG provisions where that income is a payment under a voluntary agreement, a payment under a labour hire agreement, or attributed net personal services income, leaving these types of income as ineligible for the standard deduction, NTAA said.

This is “notwithstanding that the payer is required to withhold from those payments and that the individual may be performing work indistinguishable from that of an employee working alongside them,” the submission said.

It recommended that the final ruling clarify that these categories “are not assessable labour income, and that an individual who derives only such payments will not be eligible for the standard deduction”.

Foreign employment income

Further, the submission expressed concern about clarifying eligibility for the standard deduction where an Australian tax resident employed by a foreign entity with no sufficient connection to Australia may derive “assessable salary or wages income in respect of which no withholding obligation arises”.

“It does not specifically address whether the definition is satisfied where the payer is not within the PAYG withholding system at all,” NTAA said.

It recommended that the ruling distinguish “eligibility for the standard deduction where an Australian tax resident derives assessable foreign employment income from a payer that has no PAYG withholding obligation versus a payer with a PAYG withholding obligation”.

Further, in the circumstances where an individual is a part Australian resident for tax purposes, the submission stressed that the draft ruling does not expressly state that the standard deduction is “not apportioned for a part-year Australian tax resident and should include an example involving an individual who becomes or ceases to be an Australian tax resident during the income year”.

Administration

The submission says that the draft ruling does not explain how the deduction amount will be administered and applied.

“Paragraph 27 states that, where a taxpayer is eligible, the ATO will determine their standard deduction amount when they lodge their tax return, based on the information in the return,” it said.

NTAA’s members have been asking whether the standard deduction amount will be visible in the tax estimate produced before the return is lodged, and whether it will be itemised on the notice of assessment. There is also uncertainty whether there will be any label by which a taxpayer indicates that they are receiving the standard deduction or whether the outcome is “determined by the ATO solely based on the amounts entered at the deduction labels.”

“NTAA reiterates the observation in its submission to Treasury that effective communication of the commencement will be crucial, and that there is a real risk that taxpayers will associate the new standard deduction with their 2025–26 returns rather than their 2026–27 returns.”