A free $1000? Not quite. Here’s how the new instant tax deduction works

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With April finally making way for May, it’s that time of year again where political tragics (me) start eagerly rubbing our hands together in anticipation of the federal budget. Slated for May 12, the budget will have all sorts of plans for spending or saving money, including hopefully some real reform on capital gains tax and negative gearing.

But one measure that’s already been announced is the $1000 instant tax deduction, aimed at making tax time easier for people while also providing a small amount of cost of living relief. The gist of the change is that from July 1, you’ll be able to claim up to $1000 in work-related expenses without having to keep receipts.

Now you might be thinking, “oh cool, a free $1000”, but I’m unfortunately going to have to tell you to hold your horses. While this is a good measure that will certainly save the average person some money, there are a few things to keep in mind.

What’s the problem?

Firstly, this will come into effect from July 1, so you won’t be able to use it for the financial year we’re currently in, you’ll have to wait until you lodge your 2027 tax return. Secondly, this is not an additional $1000 on top of your other claims – you can either choose to claim the standard $1000 deduction, or claim deductions in the normal way if they exceed $1000.

However, you will still be able to claim some other deductions in tandem, including charitable donations, union fees, and the cost of managing your tax affairs.

What you can do about it

Here are a few other key things to know about this big tax shake-up:

• So, do I get $1000 back? The Morrison era low-and-middle income tax offset (LMITO or lamington as it was affectionately known) really did a number on what people expect when it comes to tax savings, as it provided people on average salaries quite generous bumps to their tax returns, sometimes in the realm of $1000. This new measure is no lamington, and only serves to reduce your taxable income by $1000 – so someone on a salary of $100,000 at a tax rate of 30 per cent will have their tax bill reduced by $300. On average, the government says the savings will be around $205, but some people could see a maximum saving of $470.
• Who will benefit most? The majority of taxpayers should benefit from this change, but according to Mark Chapman, head of tax communications at H&R Block, there are some who’ll see the biggest relief.“[These are] likely to be taxpayers who have modest work-related deductions, limited record-keeping, or who currently miss legitimate claims because the compliance burden outweighs the benefit,” he says. This includes younger workers, part-timers, and employees with relatively straightforward tax affairs. “However, taxpayers with deductible expenses well above $1000 – such as those with significant car, travel, tools or work-from-home claims – may still be better off using traditional substantiated claims.”
• Should I still keep receipts? Keeping receipts is an almighty inconvenience, especially for anyone who works as a sole trader or otherwise has numerous deductions. Unfortunately, the bad news is that you’ll still probably want to keep your tatty manila folder on hand, as John Storey, tax counsel at The Tax Institute, says it’s still best practice to keep a record of what you’ve spent. “If you’ve spent more on expenses than anticipated, had you kept your receipts, you might have been able to claim more than the standard $1000,” he says. “Anyone who wants to claim more than $1000 will still need to meet the normal substantiation rules, so record‐keeping can remain important.” Chapman also warns against double-dipping – attempting to claim expenses covered by the standard deduction separately as itemised deductions.
• How else should I be preparing for tax time? The new legislation is not law yet, and won’t kick in until next financial year anyway, so you’re stuck doing your taxes as normal come June 30. Chapman says to keep records as normal, but next financial year, start paying attention to the quantity to see if you’re hitting that $1000 threshold or not. Once 2027 rolls around, he says it’s worth considering carefully if the $1000 deduction is the best choice, or if it’s best to claim as normal. “More broadly, this proposal reinforces a broader shift: tax administration is moving toward simplification, but substantiation and evidence still matter,” he says.

Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.