The two new measures join three rounds of tax cuts already legislated. The first took effect on 1 July 2024, restructuring the marginal rates and thresholds. Two further cuts follow on 1 July 2026 and 1 July 2027, dropping the 16 per cent marginal rate applying to taxable income between $18,201 and $45,000 first to 15 per cent, then to 14 per cent. Together with the instant deduction and the WATO, this gives five distinct tax cuts in train. For an Australian worker on average earnings ($81,245), the combined benefit is up to $2,816 per year from 2027-28, compared to the 2023-24 settings.

$250 Working Australians Tax Offset

The WATO is a permanent, annual tax offset of up to $250 from the 2027-28 income year, available on income earned from work. It lifts the effective tax-free threshold for working Australians by nearly $1,800 to $19,985 (or up to $24,985 for workers also eligible for the Low Income Tax Offset). This is the largest permanent increase in the effective tax-free threshold since 2012-13.

Around 13 million workers will receive the WATO, including 6.3 million women. Of those, 97 per cent are expected to receive the full $250. The offset is automatically applied once a tax return is lodged. Sole traders running their own business are also eligible.

$1,000 Instant Tax Deduction

From the 2026-27 income year, workers will be able to deduct up to $1,000 of work-related expenses without keeping receipts. Around 6.2 million workers, or 42 per cent of taxpayers, are expected to benefit, with an average tax saving of $205 in 2026-27.

Workers can still claim more than $1,000 in work-related deductions in the usual way if their records support a higher figure. Charitable donations, union and professional association fees, and other non-work-related deductions can be claimed on top of the instant deduction. Treasury estimates the measure will reduce compliance costs for workers by around $380 million per year.

Three Already-Legislated Tax Cuts

The fourth and fifth tax cuts build on three rounds already legislated:

• 1 July 2024: the first round restructured marginal rates and thresholds, delivering a tax cut for every taxpayer.

• 1 July 2026: the 16 per cent rate applying to taxable income between $18,201 and $45,000 drops to 15 per cent.

• 1 July 2027: the same rate drops to 14 per cent.

Compared to 2024-25 settings, every taxpayer receives a tax cut of up to $268 from 1 July 2026, then up to $536 each year from 1 July 2027.

Combined Benefit

For an Australian worker on average earnings ($81,245), the total benefit across all five tax cuts, relative to 2023-24 settings, is:

• Up to $2,298 in 2026-27 (combining two tax cuts plus the instant deduction)

• Up to $2,816 from 2027-28 (combining three tax cuts, the instant deduction, and the WATO)

Over the longer term, the same worker is expected to pay up to $38,977 less in tax from 2024-25 to 2036-37 than under 2023-24 settings. Average tax rates across all taxpayers fall from 25.5 per cent in 2023-24 to 24.7 per cent in 2027-28.

The already-legislated cuts are estimated by Treasury to increase labour supply by 1.3 million hours per week. The WATO targets income from work specifically, which is expected to provide further modest support to participation, particularly for lower-income workers, women, and part-time workers.

Medicare Levy Thresholds

Alongside the tax cuts, the Medicare levy low-income thresholds were lifted by 2.9 per cent from 1 July 2025 for singles, families, seniors and pensioners. More than one million Australians on lower incomes will continue to be exempt from the levy or pay a reduced rate.

Trade-offs

Treasury notes that the broader tax package, including the discretionary trust minimum tax, the negative gearing and CGT reforms, and the changes to the electric car fringe benefits tax discount, is broadly revenue neutral over the forward estimates and will not add to the outlook for inflation. The tax cuts for workers are paid for by structural reforms to income-splitting, capital gains concessions, and other settings rather than by additional debt. The WATO and instant deduction alone cost around $6.4 billion over the forward estimates.

Key Figures

• $250 Working Australians Tax Offset from 2027-28

• $1,000 instant tax deduction from 2026-27

• 13+ million workers benefit from the WATO; 97 per cent receive the full amount

• 6.3 million women benefit from the WATO

• 6.2 million workers benefit from the instant deduction (average saving $205 in 2026-27)

• Up to $2,816 combined annual benefit for an average earner from 2027-28

• $38,977 cumulative tax saving for an average earner over 2024-25 to 2036-37 vs 2023-24 settings

• 1.3 million extra hours per week in projected labour supply from already-legislated cuts

• $6.4 billion cost of the WATO and instant deduction over the forward estimates

Sources

[1] Treasury fact sheet: New tax cuts for Australian workers

[2] Budget 2026-27: Tax reform for workers, businesses and future generations

[3] Budget 2026-27 Overview