Labor’s standard deduction may expose taxpayers to ‘future tax consequences’

The Institute of Public Accountants (IPA) has warned that introducing a standard $1,000 deduction could result in taxpayers choosing simplicity and skipping the visit with their accountant, leading to consequences in the future.

The Labor government announced the $1,000 instant tax deduction on the weekend, which would enable taxpayers to choose to claim a $1,000 instant tax deduction instead of claiming individual work-related expenses, saving time and money. Taxpayers would not be required to collect receipts for deductions less than $1,000.

In a public statement, Prime Minister Anthony Albanese said this will enable taxpayers to "save on the costs of professional tax advice".

Tony Greco, senior tax adviser for the IPA, said it was an expensive measure as it treats all taxpayers the same regardless of their circumstances.

"It will be a free kick, particularly for those who are reimbursed by their employer for all their out-of-pocket work expenses," Greco said.

"Anymore who works and has less than $1,000 of legitimate deductions will tick the box and claim the standard deduction."

However, Greco warned that the introduction of an instant deduction could see more taxpayers self-prepare their returns, resulting in them missing out on an important check and balance process.

"Accountants go through an exhaustive questioning process tailored to the clients’ circumstances to ensure events that have taken place in the preceding 12 months are properly assessed for income tax purposes."

"For example, let’s say the accountant asks whether the client has disposed of any assets and the client responds by saying 'Yes, we sold part of our backyard, but this is part of my main residence, so I do not need to declare the gain'."

The accountant would then be able to inform them that this was incorrect.

"This is a good example of how accountants filter through information divulged from the client or the pre-fill data and determine the tax implications as part of this annual process," Greco said.

"Leaving consumers to self-prepare will have its downside, which should not be underestimated as they don’t know what they don’t know.

"People don't always understand the tax consequences of the actions that they've taken during the course of the year."

Greco said this is just one of many examples of questions and issues that accountants identify during a conversation with their clients.

CA ANZ has likewise warned that the simplicity "could come at a cost to the taxpayer".

Susan Franks, tax, superannuation and financial advice leader at CA ANZ, said accountants play a vital role in supporting taxpayers during tax time and helping reduce the burden on the ATO when it comes to mistakes from work expense claims.

"We know the majority of people claim more than this standard deduction and the profession expects to continue supporting taxpayers going forward," she said.

CA ANZ has also warned that simplicity may come at a cost to the taxpayer, with data from the ATO showing most taxpayers claim more than $1,000 of work-related deductions.

“Individuals, in particular sole traders, will still need to speak to a Chartered Accountant to determine whether they are better off claiming the standard $1,000 deduction or actual costs.

“Those undertaking tertiary education or professional continuing education, for example, should definitely keep all of their receipts as their claims are generally well in excess of $1,000.

“So too should people who use the cents per kilometre method for car expenses who exceed 1,140 business kilometres a year," Franks said.

She also stressed that if taxpayers planned to claim actual costs, they would likely need receipts for every dollar spent, not just the amount over $1,000.

“The standard deduction only relates to expenses associated with labour, so those taxpayers who also earn business income, rental income, interest and dividends and those who are feeling charitable, will need to keep their receipts to claim deductions related to those activities."

Franks also noted that the standard deduction applies from 1 July 2026.

"I wouldn’t be throwing receipts in the bin just yet. You will need them to claim for expenses incurred up to 30 June 2025 and will have to retain them for five years after your tax return is lodged."

“And going forward, it’s worth noting, the standard deduction, like personal tax rates, will be affected by inflation. Its value to taxpayers will decrease as inflation increases.”