What changed for individuals on 1 July 2026, and what it means at tax time

From 1 July 2026 the marginal rate on taxable income between $18,201 and $45,000 dropped from 16% to 15%. That is worth up to $268 a year. On the same day a $1,000 standard deduction for work-related expenses started, and the $300 no-receipts threshold that has sat in the substantiation rules for decades was repealed.

Neither change affects the return you are lodging right now. The 2025-26 return runs on the old rules. Both changes apply to the 2026-27 income year, which you lodge from July 2027. The ATO states it plainly in its list of what is new for individuals: the standard deduction does not apply to the 2025-26 tax return.

The rate cut is one cent in the dollar, on one bracket

The resident rate scale for 2026-27 is:

• $0 to $18,200 — nil
• $18,201 to $45,000 — 15c for each $1 over $18,200
• $45,001 to $135,000 — $4,020 plus 30c for each $1 over $45,000
• $135,001 to $190,000 — $31,020 plus 37c for each $1 over $135,000
• $190,001 and over — $51,370 plus 45c for each $1 over $190,000

Those rates exclude the 2% Medicare levy. They were legislated on 27 March 2025: the Treasury Laws Amendment (More Cost of Living Relief) Act 2025 added two new tables to the Income Tax Rates Act 1986, one setting 15% on the first taxable band for 2026-27 and one setting 14% for 2027-28 and later years.

Only one band moved, so the arithmetic is short. One per cent of $26,800 is $268. You get the whole $268 once your taxable income reaches $45,000, a share of it below that, and nothing at all under $18,200. At $30,000 of taxable income the cut is worth $118. Treasury's budget material on cost of living says the same thing — a tax cut of up to $268 from 1 July 2026, then up to $536 every year from 1 July 2027.

The second step is not an announcement to watch. The 14% table is already in the Act, and it takes effect on 1 July 2027 without anything further having to pass.

Your take-home pay moved before your return did

The ATO rebuilt its withholding tables to match. Its tax tables page records that the cuts made by the Act apply to 2026-27 and produced updates to all 15 withholding schedules and 12 tax tables from 1 July 2026. Payroll software on a current release picked that up in the first pay run of the year.

Above $45,000 of taxable income, that is roughly $10 a fortnight. It is worth understanding what it is not: it is not extra refund waiting for you in 2027. It has already been paid to you, fortnight by fortnight, by not being withheld.

The deduction works the other way around. Withholding follows the rate scale, not your deductions. The $1,000 standard deduction does nothing to your pay and everything to your assessment, so it lands as a smaller bill or a larger refund when the 2026-27 return is lodged.

What the $1,000 standard deduction actually does

It is law. The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 received assent on 26 June 2026 and inserted section 25-130 into the Income Tax Assessment Act 1997, applying to the 2026-27 income year and later years.

There are three eligibility tests and all three must be met. You must be an individual, you must be an Australian resident at some time during the income year, and you must derive assessable labour income. Labour income is defined by reference to the pay as you go withholding provisions: payments to employees, company directors, office holders and religious practitioners, return-to-work payments, payments on retirement or termination of employment, and parental leave pay.

If your income comes only from a business or from investments, you are outside it. So are sole traders, partners in partnerships and, in general, independent contractors. The ATO's guidance on the standard deduction for work-related expenses frames it the same way: current arrangements continue for people who earn only business or investment income.

Most people have the mechanic wrong. It is not a box you tick instead of itemising. The deduction is the lesser of $1,000 and your total labour income, reduced — but not below zero — by the work-related deductions you do claim: general deductions incurred in earning that income, car expenses, travel between workplaces, repairs and depreciation on work assets, and COVID-19 test costs.

That makes it a floor, not an alternative. Claim $400 of work-related expenses and the standard deduction tops you up by $600. Claim $1,400 and the standard deduction is nil. Your total work-related deduction is the higher of $1,000 and what you actually spent. It is never the two added together.

Two limits are easy to miss. The deduction cannot exceed your labour income, so a student with $600 of wages gets $600, not $1,000. And a salary-packaged expense of the kind the standard deduction covers loses its fringe benefits tax treatment, which is what stops the same dollar being counted twice.

Some deductions sit outside the calculation entirely and stack on top of the $1,000: income protection, personal sickness and accident insurance premiums; membership of a trade, business or professional association; deductions unconnected with labour income, such as investment expenses; gifts and donations; and the cost of managing your tax affairs.

Treasury expects 6.2 million workers, 42% of taxpayers, to benefit, at an average saving of $205 for 2026-27.

Worked example: the flat $1,000 against itemising

Two employees in Robina, each on an $85,000 salary in 2026-27. Both sit on a 32% marginal rate once the 2% Medicare levy is counted.

Priya has $640 of substantiated work-related expenses: working-from-home running costs and a work share of her mobile.

• Itemise: $640 claimed, the standard deduction tops her up by $360, total work-related deduction $1,000.
• Claim nothing: standard deduction $1,000, total work-related deduction $1,000.
• Either way her taxable income is $84,000 and her tax, including the Medicare levy, is $17,400. Itemising gains her nothing but paperwork.

Dan is an employed tradesperson with $3,150 of tools, protective clothing and work vehicle costs.

• Itemise: $3,150 claimed, standard deduction nil, taxable income $81,850, tax $16,712 including the Medicare levy.
• Take the $1,000 instead: taxable income $84,000, tax $17,400 on the same basis.
• Itemising is worth $688 to him. That is the $2,150 by which his expenses exceed $1,000, at his 32% rate.

The crossover is exactly $1,000 of genuine, substantiated work-related expenses. Below it, itemising gains you nothing, because every dollar you claim cuts the standard deduction by a dollar. Above it, itemising is worth your actual expenses less $1,000, multiplied by your marginal rate. There is no discretion in that. It is arithmetic.

What it means for your records

The old shortcuts are gone. From 2026-27 the Act repeals the $300 no-receipts threshold, the $150 instant deduction for laundry and the award transport payment exception. Nothing partial is left in their place. Below $1,000 there is nothing to be gained by claiming, so the records serve no purpose. Above $1,000 you need written evidence for every dollar, not just for the excess.

The trap is the timing. You decide whether to keep receipts in July 2026. You find out whether that was the right call in July 2027, and by then the receipts you binned are not coming back. If your work-related claims have ever run past $1,000, which is common for anyone who buys their own tools or uniforms or drives for work, keep everything.

Records for the stacked deductions still matter. The $1,000 does not cover donations, professional memberships, income protection premiums or investment expenses, so each of those still needs its own substantiation.

Getting this decided once, early in the year, is a bookkeeping question rather than a tax-time one. If you would like the position checked against your own numbers before June, that sits inside our taxation and compliance and accounting work.