Instant tax deduction – exposure draft
Chartered Accountants Australia and New Zealand, CPA Australia and The Tax Institute (together, the Joint Bodies) welcome the opportunity to comment on the:
- exposure draft, Treasury Laws Amendment Bill 2026: standard deduction for work-related expenses (draft Bill); and
- accompanying explanatory memorandum (draft EM).
The standard deduction will be included under the new section 25-130 of the Income Tax Assessment Act 1997 (ITAA 1997). Our submission focuses on how the new law is intended to operate.
The simplicity of claiming a $1,000 tax deduction instead of substantiating every expense is a worthy aspiration to enable significant administrative savings for both taxpayers and the Australian Taxation Office (ATO). However, the drafting of the proposed the $1,000 standard deduction for work-related expenses and its interactions with other provisions contain features that complicate the claiming of the deduction and make it more difficult for those who do not apply the standard deduction to claim deductions under other provisions.
Consultation timeframe
We are concerned that the two-week consultation window for these changes does not provide sufficient time for stakeholders to properly analyse the proposals, assess their practical impacts, or engage meaningfully with the reform process. Fulsome consultation is particularly important where, as in this case, the measure introduces new interactions across the income tax and fringe benefits tax (FBT) systems, and affects a wide range of taxpayers and employers.
Short consultation periods reduce the effectiveness of consultation, increase the risk of unintended consequences, and may undermine confidence in the tax system. The Office of Impact Analysis states in its March 2023 Australian Government Guide to Policy Impact Analysis report (OIA Report) that consultation periods should generally be at least 30 days, and longer where proposals are complex or sensitive, to allow stakeholders time to properly consider and respond.
We encourage Treasury to consider the OIA Report when planning future consultations to ensure stakeholders can effectively contribute to and support the Government in designing and implementing changes to the tax system for the benefit of all Australians and our economy.
Summary of key concerns and recommendations
The design of the $1,000 standard deduction raises several issues that require further consideration:
- Lack of indexation
The $1,000 standard deduction is not indexed. Over time, inflation will reduce its real value, meaning fewer taxpayers will benefit and the simplification purpose of the measure will be weakened.
We recommend that this amount be periodically indexed.
- Lack of a clear choice for taxpayers
The legislation does not clearly allow taxpayers to choose the $1,000 standard deduction instead of claiming and substantiating work-related expenses, even though the draft EM indicates that this choice is intended. This reduces the effectiveness of the measure as a compliance-saving option.
We recommend that subsection 25-130(2) be amended to expressly recognise a taxpayer’s ability to choose whether to claim work-related expense deductions or rely on the standard deduction.
- Removal of existing simplified substantiation rules
Existing simplification measures, such as the $150 laundry expense concession, are proposed to be removed. These concessions are still needed by taxpayers who choose not to use the $1,000 standard deduction and instead continue to substantiate their work-related expenses.
We recommend that such compliance savings measures be retained.
- Treatment of education expenses
Education expenses can fully reduce the $1,000 standard deduction. This means taxpayers undertaking education may lose access to a key simplification measure, despite the important role education plays in developing skills and productivity.
We recommend that tuition expenses be included in subsection 25-130(3).
- Low value pooling and balancing adjustment complexity
The proposed restrictions on low-value pooling and the new 50 per cent balancing adjustment rule add technical complexity and are difficult for individual taxpayers to understand and apply. Without clear explanation of the policy rationale and examples, these changes may reduce the intended compliance savings of the standard deduction.
- Interaction with FBT
The proposed FBT change switches off the otherwise deductible rule for all salary packaged work-related expenses, rather than just the $1,000 standard deduction amount. This may lead to unfair FBT outcomes and disrupt existing salary-sacrifice arrangements for both employers and employees.
- FBT transition and timing issues
The interaction between the standard deduction and the Fringe Benefits Tax Assessment Act 1986 (Cth) (FBTAA) raises transition issues. As drafted, there is a gap between the commencement of the income tax changes and the start of the FBT year on 1 April 2027. This gap may create uncertainty for employers, even if it is intended to avoid part-year FBT calculations.
- Removal of FBT exemption for work-related items
The draft Bill contains an unexpected amendment to the FBT treatment of work-related items, such as portable electronic devices, computer software, protective clothing, briefcases and tools of trade. Removing the FBT exemption for items provided under salary packaging arrangements represents a significant policy change.
- Draft EM requires further expansion
The draft EM needs to be significantly expanded to better explain how the standard deduction will operate in practice. This should include clearer explanations of eligibility, how the standard deduction interacts with other deductions, and additional practical examples to assist taxpayers and advisers.
- Need for taxpayer education and guidance
The ATO will need to deliver a comprehensive education campaign to ensure taxpayers understand that the standard deduction applies only to employment income. In particular, guidance should clearly explain that the standard deduction does not apply to self-employment income or ‘side-hustle’ activities.
Our detailed observations and recommendations to improve the policy design of this measure are contained in Appendix A.