Two changes landed on 1 July 2026 that directly affect how much tax most individual taxpayers pay — and how much paperwork you need to deal with come tax time. If you're an employee or sole trader, both are worth understanding before you lodge your next return.

Change 1: The Lowest Tax Rate Has Dropped

The tax rate on income between $18,201 and $45,000 has reduced from 16% to 15%. It's a modest change on paper, but it applies to a huge slice of the working population — anyone earning above the tax-free threshold feels it in every pay cycle, not just at tax time.

For most PAYG employees, this adjustment is already reflected in updated withholding rates, so you shouldn't need to do anything actively — but it's worth checking your payslip or payroll software to confirm the new rate has been applied correctly.

Change 2: The New $1,000 Instant Deduction

This is the bigger practical shift for a lot of taxpayers. From the 2026–27 income year, individuals can choose a flat $1,000 deduction for work-related expenses instead of collecting and itemising receipts.

Here's what that means in practice:

• Standard deduction is simpler. If your real work-related expenses are under $1,000, taking the standard deduction is the simpler, and likely better, option — no receipts, no substantiation required.
• Keep records if close to limit. If your expenses are close to or above $1,000 (uniforms, tools, training, home office costs, etc.), it's worth keeping your records and comparing both methods before you lodge — itemising could still work out ahead.
• It's one or the other. You can't do both. It's one or the other, so the choice is worth a proper comparison rather than a guess.

A Related Change to Watch: Car Expenses

Work-related car expenses remain a major area of ATO focus. For most employees, travel from home to a regular workplace is still considered private travel — even where tolls or parking are involved — and isn't deductible. If your role genuinely involves additional work-related travel beyond the regular commute, the cents-per-kilometre method can simplify claims, but it's designed to cover all vehicle-related costs in one rate, so it doesn't stack with separate claims for fuel, servicing, or depreciation.

What This Means for Your Next Return

• 1. Check your payslip Confirm the new 15% rate has been applied if you're in the affected bracket.
• 2. Decide early which deduction method suits you Choose the standard $1,000 deduction or itemised claims rather than leaving it until lodgment time. We can help you compare options with our Individual Tax Returns and Tax Planning Strategies services.
• 3. Keep records regardless Even if you plan to use the standard deduction, holding onto receipts through the year means you're not locked in if your circumstances change.
• 4. Review car expense claims carefully Ensure your travel claims comply with ATO guidelines, as this remains a high-scrutiny area for the ATO.

“These changes are designed to simplify tax time for a lot of taxpayers, but 'simpler' doesn't always mean 'better for you' — the right choice depends on your actual expenses and circumstances. A quick comparison before you lodge can make a real difference to your refund.”

Not sure which deduction method works out best for you, or want a second set of eyes on your return before you lodge? Get in touch with our team at PHC & Associates — we're happy to help you get it right.

Further Reading

• ATO — Individual tax rates and thresholds
• CPA Australia — Tax time focus areas