Australia's newest tax cut explained — who gets it, when it starts, and how it stacks with the other 2026-27 Budget measures.
The 2026-27 Federal Budget, handed down on 13 May 2026, introduced a new Working Australians Tax Offset (WATO) — a permanent annual offset of up to $250 for every Australian worker. It's the fifth round of personal income tax cuts the Government has rolled out since 2024, and it stacks on top of the staged rate cuts already in train and the new $1,000 instant work-related deduction. This article explains what the WATO actually is, who gets it, and how the combined package changes your take-home pay.
The WATO is a tax offset — not a cash payment. A tax offset reduces the tax you owe dollar-for-dollar after your tax is calculated. The $250 WATO can reduce your tax bill by up to $250, but it can't reduce it below zero. In tax-jargon terms, it's non-refundable.
According to the Government's cost of living statement, 13 million Australian workers will receive the offset, and 97% of them are expected to get the full $250. It applies to income from wages, salary and sole-trader earnings, so PAYG employees and self-employed Australians alike are covered. The offset is permanent and ongoing — it will appear in every tax return from 2027-28 onwards, much like the Low Income Tax Offset does today.
The WATO takes effect from the 2027-28 income year — the financial year that runs from 1 July 2027 to 30 June 2028. The first time most workers will see it in their tax return is the return they lodge after 30 June 2028. You don't need to do anything to claim it. The ATO calculates it automatically when you lodge, the same way LITO is applied today.
One of the more interesting design features: although the statutory tax-free threshold remains $18,200, the WATO effectively raises the threshold for workers. The Government's figures put the effective tax-free amount at $19,985 once the WATO is applied, or $24,985 for workers also eligible for the full Low Income Tax Offset. That's because the offsets reduce tax to zero across a wider income range, even though the underlying brackets haven't moved.
If you'd like a refresher on how LITO interacts with the brackets, our Tax Guide walks through the calculation step by step.
The WATO doesn't sit alone. The Government is also cutting the bottom marginal tax rate in two stages:
Per the Government's tax reform package, every taxpayer will get up to $268 in extra savings a year from 1 July 2026, rising to up to $536 a year from 1 July 2027 compared with the 2024-25 tax settings. The WATO's $250 then comes on top of that from 2027-28.
Also new in this Budget: a $1,000 instant tax deduction for work-related expenses, available from the 2026-27 income year. This works differently from the WATO. It's a deduction, not an offset — it reduces your taxable income by $1,000 rather than your tax by $1,000. The tax saving depends on your marginal rate. At the new 15% bracket the saving is $150; at 30% it's $300; at 37% it's $370.
The big drawcard is that you don't need to keep receipts. 6.2 million workers are expected to use it, with an average tax saving of $205 in 2026-27. If your real work-related expenses are higher than $1,000, you can still itemise them as before — the deduction is a floor, not a ceiling. There are two practical caveats worth keeping in mind. First, the deduction only covers work-related expenses, not other categories like investment costs or charitable donations. Second, you'll need to choose between the $1,000 default and itemising actual receipts; you can't take both.
Treasury's case studies show what the combined package looks like for typical earners. A worker on average earnings of $81,245 gets a $1,978 tax cut in 2026-27 and $2,496 from 2027-28 compared to the 2023-24 settings. Add the average $1,000 instant deduction benefit and that worker is $2,701 better off in 2027-28 — or $2,816 better off if they get the maximum benefit from the instant deduction.
One illustrative case from the Budget: Dean, a mechanic earning $70,000 with $300 in work expenses, got a $1,429 tax cut in 2025-26 from the first round of tax cuts. With the WATO and the next two rate cuts, his saving rises to $2,215 a year from 2027-28. The instant deduction adds another $224. That's a total annual cut of around $2,439 by 2027-28 versus 2023-24 tax settings.
| Measure | When it starts | Annual benefit (per worker) |
|---|---|---|
| 16% → 15% bracket cut | 1 July 2026 | up to $268 |
| 15% → 14% bracket cut | 1 July 2027 | up to $536 (cumulative) |
| Working Australians Tax Offset | 2027-28 income year | up to $250 |
| $1,000 instant work-related deduction | 2026-27 income year | average $205 (varies by marginal rate) |
| Medicare levy low-income threshold lift | 2025-26 income year | varies (low-income only) |
You can model your own numbers using our Australian Salary Calculator or the Tax Return Calculator — the 2026-27 settings are already loaded, with later years to be added as legislation passes.
A few things to be clear on. The WATO is for workers — it doesn't apply to investment income alone, retirees with no wage or sole-trader income, or beneficiaries of trusts not engaged in personal services. Pensioners and self-funded retirees may still benefit from the separate Senior and Pensioner Tax Offset (SAPTO), but the WATO is specifically tied to working income. The Budget also extended Medicare levy low-income threshold relief by 2.9% from the 2025-26 financial year, which provides separate, smaller cost-of-living relief for around one million low-income individuals, families and seniors.
Budget announcements aren't law until the relevant tax bills pass Parliament. As of writing, the WATO, the staged rate cuts and the $1,000 instant deduction are Government policy that has been announced in the Budget but not yet legislated. The two earlier-rate cuts (the existing Stage 3 tax cuts from 2024-25) are already in force. If the policies pass as expected, the WATO will be in place for the 2027-28 income year. Anyone planning around these numbers should keep an eye on the relevant tax bills passing the Senate.
Disclaimer: This article summarises the Working Australians Tax Offset and related measures announced in the 2026-27 Federal Budget. Budget measures are subject to legislation and may change before they take effect. This is general information only and not financial or tax advice. Refer to the official Budget website and the ATO for the most current rules, and consult a qualified tax professional for advice about your circumstances.