Standard deduction draft ruling needs more explanatory commentary, examples: IPA

In the Institute of Public Accountants’ (IPA) submission on the Draft Law Companion Ruling LCR 2026/D5 – The standard deduction for work-related expenses, it called for the ATO to provide greater detail and clarity on the ruling.

Responding to the draft ruling’s second section, which reads: “Taxpayers with more than $1,000 in genuine work-related expenses may continue to claim them and substantiate their expenses. If they do, their standard deduction is reduced to zero,” IPA called for greater clarity on who this treatment applies to, recommending that it mention that it applies to taxpayers wishing to claim up to $1,000 of substantiated work-related expenses, where their standard deduction is reduced by that amount.

Further, the institute stressed that the ruling must explain whether the alienated personal services payment amounts which are subject to the remittance rules are not considered assessable labour income.

Where there is a decline in value of work-related assets, IPA recommended that the inclusion of a new example “in which the taxpayer uses a depreciating asset for the purposes of deriving both assessable labour income and business income – for example, a computer, a work desk or an air conditioner”.

It recommended that “the portion of the decline in value that is attributable to the derivation of assessable labour income will be counted toward the standard deduction. The other portion will be separately deductible,” which can be done by adding a variation to the rulings.

In addition, it recommended that clarity be provided on whether the tax return stationery will include a new standard deduction field and whether taxpayers will be required to ensure deductions excluded from the standard deduction amount continue to be deductible by providing an “itemised breakdown in label D5 Other work-related expenses”.

Where taxpayers may choose to utilise the standard deduction, it is called for the ATO to specify whether this is done automatically, or must be done manually, and to provide an example and brief commentary could be useful to explain how the rules apply to a taxpayer who is a part-year tax resident.

IPA said that further explanatory commentary and examples should be provided to explain the practical implications of the removal of the definitions of award transport payment and transport payment in the ruling.

As the ATO website noted that early lodgers must lodge a paper return, the submission stressed that the ruling must clarify how early lodgers should fill out their tax return form for the standard deduction and whether the standard deduction applies automatically where an eligible early lodger claims work-related expenses of less than their maximum standard deduction amount.