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Millions of Australian workers from next year will be able to “instantly” claim a standard deduction of up to $1,000 in work-related expenses without having to keep receipts.

The draft legislation for the policy landed on Monday, just over a year after Labor proposed the change in the run-up to the 2025 election.

Let’s take a look at what it means for you.

Sweet, a $1,000 instant tax deduction!

Slow down!

No, you don’t get a grand off your tax bill. 

What you can do is reduce your taxable income by that amount; the size of your tax deduction will depend on your marginal tax rate. 

For example, if you earn $100,000 a year, your marginal tax rate is 30%.  Reducing your taxable income by $1,000 will mean your tax bill will be $300 lower.

Treasury says the maximum benefit will be $470, and estimates the average benefit will be about $205. 

About four in 10 workers, or 6.2 million workers, will benefit from the new rules, Treasury reckons.

Note that these are expenses that relate to earning income from labour, not from your business or investments.

And you can only reduce your taxable income from labour to $0, not below.

Still sounds pretty great. Why the change to tax rules?

In Jim Chalmers’ words: “This will cut back on paperwork, it will save time and money, and it will provide a bit of tax relief as well.”

“It’s a good symbol of what we are trying to do more broadly – cutting income taxes, cutting red tape and helping out where we can,” the treasurer told journalists on Monday morning.

For a more official rationale, Treasury in its explanatory materials said that the change was a “compliance saving measure” that will mean “taxpayers can rely on receiving a standard amount without requiring substantiation”.

I’m still a bit confused how this will work.

Let’s use Treasury’s example of the fictional Nicky, who claims these expenses:

• $200 in work from home expenses

• $50 in stationery that is required for their job

• $50 for a work-related subscription

• $150 for travelling between workplaces

• $50 for a charitable donation

• $150 for a tax agent to do their income tax return

To begin with, the charitable donation and the tax agent don’t relate to costs incurred as part of doing your job, so they can be claimed in addition to the $1,000.

The first four items are work-related expenses and sum to $450. Nicky can claim the $1,000 standard deduction without providing any receipts.

Technically, the way it will operate is that “the $450 work-related expenses reduce the $1000”. This means Nicky cannot claim another $1,000 on top of the $450 they are already claiming; instead, they claim another $550 – taking their total standard deduction to $1,000.

Importantly, taxpayers will receive the benefit even if they don’t claim any expenses. Let’s say Nicky couldn’t be bothered claiming their $450 in work-related expenses in their tax return.

Treasury’s explanatory memo says they still get the $1,000 standard deduction.

(Nicky will still need to separately claim the donation and the accountant fees, though.)

What if I have more than $1,000 in expenses?

Bad news.

You’ll need to list and substantiate all of your work-related expenses, which means you better keep all of your receipts.

Basically, this change to the rules is no help at all if your expenses are more than $1,000.

How much is this going to cost the federal budget?

The Parliamentary Budget Office last year estimated the policy would cost $1.24bn in 2027-28 (the first year where tax returns would be filed), and $1.25bn in the following year.

By the middle of the 2030s, it will be costing about $1.4bn a year, according to the PBO.

What’s next?

Treasury has asked for feedback on the draft legislation by 1 May.

This feedback will be considered for final draft legislation to be presented to parliament, where it has a good chance of being waved through.

After all, what politician wants to get in the way of some extra tax relief for hard-working Aussie battlers?