The Working Australians tax offset: law now, claimable from 2027-28

Schedule 3 of the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 — Act No. 49 of 2026, which received Royal Assent on 26 June 2026 — inserted a new Subdivision 61-E into the Income Tax Assessment Act 1997. Subdivision 61-E creates the Working Australians tax offset: an amount applied against the income tax you would otherwise pay for the year.

A tax offset is not a deduction and not a payment. A deduction reduces your taxable income, so it is worth your marginal rate on the amount claimed. An offset is subtracted from the tax itself. This one is subtracted from your basic income tax liability — the tax worked out on your taxable income at the applicable rates, before offsets are applied.

Item 4 of Schedule 3 is short and decisive: “The amendments made by this Schedule apply in relation to assessments for the 2027-28 income year and later income years.” The 2027-28 income year runs from 1 July 2027 to 30 June 2028, so the offset is first claimable in returns generally lodged from about July 2028.

Nothing in Schedule 3 phases the offset in, grandfathers anyone, or brings it forward. The Schedule contains exactly four items — the new Subdivision, the priority-table item, an index entry and the application rule — and no transitional or savings provisions at all. It simply does not touch an assessment for an earlier income year. For what does apply to the current income year, see our resource on the individual income tax rates for 2026-27.

Section 61-160 sets the amount as the lesser of two things: (a) $250; and (b) the amount that would be your basic income tax liability for the income year if your taxable income was comprised only of your net labour income.

Limb (b) is a hypothetical calculation, not your real tax bill. It asks what tax would fall on your net labour income standing alone, and caps the offset at that figure. Where that hypothetical amount is below $250, the offset is that lower amount. So $250 is the maximum the Subdivision can produce, not a universal entitlement: for many people the offset will be smaller, and for anyone whose net labour income does not exceed the tax-free threshold it is nil.

Two further mechanical points from the text. The $250 is a fixed figure: Schedule 3 contains no indexation mechanism and no power to vary it. And Schedule 3 contains no legislative instrument power at all — unlike some other measures in the same Act, nothing about this offset is waiting on subordinate legislation.

1. You must be an individual. Companies, partnerships and trusts are not entitled, and Subdivision 61-E contains no extension to trustees assessed on a beneficiary’s behalf.
2. You must be an Australian resident at any time during the income year. The test is deliberately generous within the year: part-year residents are not excluded. Someone who is a foreign resident for the whole income year is excluded.
3. Your net labour income must exceed the tax-free threshold (as defined in the Income Tax Rates Act 1986) for that year. This is a gate, not a taper — if you do not clear it, there is no entitlement at all.

The Act does not state a dollar figure for the threshold in limb 3. Section 61-155(1)(b) picks it up from the Income Tax Rates Act 1986 as in force for the relevant year, so the floor for 2027-28 is whatever that Act provides for 2027-28.

Section 61-155(2) works out net labour income as labour amounts minus labour deductions. The term is narrower than “money you earn from working” in ordinary speech, because assessable labour income — the core building block — is anchored to specific PAYG withholding categories in Schedule 1 to the Taxation Administration Act 1953 (payments to employees, company directors, office holders, religious practitioners, return-to-work payments, employment termination payments and parental leave pay).

Labour deductions are the mirror image: expenses incurred in gaining or producing those labour amounts, deductions under the new standard deduction provision (s 25-130), certain decline-in-value deductions under s 40-25 (excluding amounts allocated to a low-value pool), the categories listed in paragraphs 25-130(2)(d) to (g), and simplified depreciation deductions under Subdivision 328-D to the extent the asset is used to derive sole-trader business income. Section 61-155(3) stops an amount being counted twice where more than one paragraph would otherwise pick it up.

These are the two measures in Act No. 49 of 2026 that individuals most often run together. They do different things, in different years, through different mechanisms.

The practical consequence: a 2026-27 return may involve the standard deduction; it cannot involve this offset. Our companion resource covers the standard deduction for work-related expenses, including the substantiation exceptions the same Schedule repealed.

Schedule 3 also inserted a new item 3 into the table in s 63-10(1), which sets the order in which tax offsets are applied and what happens to any excess. For this offset, the “what happens to any excess” column reads: “You cannot get a refund of it, you cannot transfer it and you cannot carry it forward to a later income year.”

• Non-refundable — it can reduce tax payable to nil, but it cannot generate a refund of its own.
• Non-transferable — it cannot be passed to a spouse or anyone else.
• No carry-forward — an unused amount does not roll into a later income year. It is forfeited.
• Applied against basic income tax liability — unlike the table items for the veterans’ superannuation offset and the foreign income tax offset, the new item 3 contains no provision extending it to the Medicare levy or the Medicare levy surcharge.

On the version of the s 63-10(1) table in force in June 2026, the new item 3 sits at the top of the ordering, so this offset is applied before others. That ordering is taxpayer-favourable in effect — using a use-it-or-lose-it offset first preserves offsets that can be carried forward or refunded — but it depends on the state of the table in 2027-28, which could change if another Act inserts an earlier item.

• The dollar figures are not in this Act. The tax-free threshold in s 61-155(1)(b) and the rate scale behind the hypothetical calculation in s 61-160(b) both come from the Income Tax Rates Act 1986 as it applies for 2027-28.
• The claiming mechanics are not in the Act. Schedule 3 says nothing about how the offset is claimed or whether the ATO calculates it from return data. Nobody should assert that it will be applied automatically.
• No ATO guidance had been published on this measure at 13 July 2026. Nothing here describes how the ATO will administer it.
• The consolidated ITAA 1997 on the Federal Register did not yet show Subdivision 61-E at the verification date. That is a compilation-timing artefact — Schedule 3 commenced on 1 July 2026 — not a doubt about the law.