$1k standard deduction to free up ATO’s resources, says H&R Block

Tax measures announced by Labor in the lead-up to the election are likely to now progress into law after Labor managed to win the majority of seats in the House of Representatives.

This includes the $1,000 automatic deduction measure, which will enable taxpayers to claim up to $1,000 for work-related expenses without the need for receipts.

Mark Chapman, director of tax communications at H&R Block, said the measure will benefit around 6 million workers who currently claim less than this amount.

Chapman said accountants will need to ensure their clients are aware of how the deduction operates.

"The reform will allow taxpayers to choose to claim a $1,000 instant tax deduction instead of claiming individual work-related expenses. It is intended to save time and money for taxpayers, who won’t – in theory – need to keep receipts or invoices to substantiate the $1,000 deduction," he said.

"Of course, in practice, many taxpayers will still need to keep full substantiation as they won’t necessarily know whether their work-related expenses are more or less than $1,000 until they get to the end of the tax year."

Chapman reminded taxpayers that if they wish to claim more than $1,000 in work-related expenses, they won't be able to claim the automatic deduction.

"You will need to follow the current rules, which involve full substantiation of most expenses," he said.

One of the other benefits of the new deduction is that the ATO will not need to audit taxpayers who claim the standard deduction, Chapman said.

"This will enable them to focus on higher tax claims including work-related deductions over $1,000," he said.

Chapman said this may also increase the level of scrutiny on taxpayers claiming above $1,000 in deductions in terms of what records they have to support their claim.

Under the current rules, H&R Block noted that taxpayers can claim up to $300 in work-related expenses without substantiation.

"If they exceed the $300, they need full substantiation for all their expenses, not just the excess over $300," he said.

"The $300 limit doesn't apply to claims for car expenses, meal allowance, award transport payments allowance, or travel allowance expenses. Taxpayers do need to prove how they spent the money and how they calculated the claims."

Chapman said it was unclear at this stage whether the $1,000 standard deduction will be a blanket exemption for all work-related expenses of less than $1,000 or if it will simply piggy-back on the existing $300 exception, with the threshold simply increasing by $700.

It is also important that clients understand that it is a standard deduction and not a simple refund of $1,000, Chapman said.

"The amount you get back depends on your tax rate. For example, someone who pays tax at 30 per cent will get $300 (30% x $1,000) back," he said.

"Taxpayers will need to complete a tax return to claim the deduction which means that it will be July 2027 at the earliest before they see any benefit."

Labor also announced a reduction in the bottom rate of income tax in the federal budget, which would see the lowest tax bracket cut from 16 per cent to 15 per cent, which would be the equivalent of one cent less for every dollar you earned between $18,201 and $45,000.

"On July 1, 2027, the rate will fall again to 14 per cent. The actual impact on taxpayer’s take-home pay will be limited; it amounts to a tax reduction of $268 from 1 July 2026 and $536 from 1 July 2027," Chapman said.