The ATO has issued Draft Law Companion Ruling LCR 2026/D5, explaining how the new standard deduction for work-related expenses under section 25-130 of the ITAA 1997 operates.

The ruling provides eligible Australian tax resident individuals with assessable labour income a standard deduction of up to $1,000 without the need for substantiation. Taxpayers with more than $1,000 in genuine, substantiated work-related expenses may continue to claim those expenses instead, in which case the standard deduction is reduced to zero.

The draft ruling is divided into three parts covering eligibility, calculation and substantiation consequences for individuals, the interaction with the capital allowance rules in Division 40, and the interaction with the fringe benefits tax rules for employers.

Comments are invited until 9 October 2026. The ruling is proposed to apply from 1 July 2026 once finalised.

LCR 2026/D5