Standard Deduction in Australia 2025: What You Need to Know

The words ‘standard deduction’ have been making the rounds in Australian tax circles for 2025, raising questions for millions of taxpayers. Is Australia moving closer to a simpler tax system? Here’s what you need to know about the standard deduction concept, how it compares to global practices, and what it could mean for your wallet this financial year.

What Is a Standard Deduction—and Does Australia Have One?

Globally, a standard deduction is a fixed dollar amount that taxpayers can subtract from their income, reducing the amount subject to tax. It’s a central feature of the US tax system, where most taxpayers opt for it instead of itemising every possible deduction.

In Australia, the tax system has traditionally relied on itemised deductions—think work-related expenses, self-education, and charitable donations. However, the idea of introducing a standard deduction has resurfaced in 2025 policy debates, especially as the ATO faces mounting pressure to simplify the lodgement process and reduce audit costs.

• In 2020, a temporary shortcut method allowed a flat 80c per hour for home office expenses during the pandemic.

• In 2025, a parliamentary committee is reviewing proposals for a permanent standard deduction—potentially ranging from $2,000 to $3,000 per taxpayer, according to the latest Treasury submissions.

Why the Standard Deduction Is Back in the Spotlight

The push for a standard deduction in 2025 isn’t just about tax simplicity. There are broader implications for fairness, compliance, and the economy:

• Simplification: The ATO receives millions of deduction claims each year, many for small amounts. A standard deduction could cut paperwork and reduce errors.

• Audit Efficiency: Recent ATO audits have found widespread mistakes in work-related expense claims. A fixed deduction would streamline compliance for both taxpayers and the ATO.

• Fairness: Not all workers have the same ability to claim deductions. A universal standard deduction could level the playing field—although there’s debate about whether it would unfairly benefit or disadvantage certain groups.

• Economic Impact: Treasury modelling suggests a standard deduction could boost after-tax income for most workers, increasing spending power in a softening economy.

For example, a full-time teacher with limited out-of-pocket expenses might benefit from a standard deduction, while a sales rep who drives hundreds of kilometres a week could be worse off if their actual costs exceed the standard amount.

How Would a Standard Deduction Change Your Tax Return?

While nothing is set in stone for 2025, here’s how a standard deduction could impact the way you lodge your tax return:

• Less Paperwork: No more chasing up receipts for minor expenses—just claim the flat amount.

• Faster Processing: With fewer individual claims, the ATO could process returns and refunds more quickly.

• Potential for Choice: Some proposals suggest taxpayers could choose between the standard deduction or itemising if their actual expenses are higher.

It’s worth noting that in the US, around 90% of filers take the standard deduction because it’s more generous than their eligible itemised claims. If Australia adopts a similar model, we could see a dramatic shift in how deductions are approached.

However, sectors with high legitimate expenses—such as tradies, performing artists, or travelling sales staff—are lobbying for the right to keep itemising if it suits them better. The final design is likely to involve an optional standard deduction, at least in the early years.

The Road Ahead: What to Watch in 2025

The standard deduction isn’t a done deal yet. The Albanese government has flagged further consultation in the May 2025 Federal Budget cycle, with potential legislation to follow if there’s broad support.

• ATO Pilot Programs: In 2025, the ATO is trialling a digital pre-fill tool for work-from-home expenses, which could serve as a stepping stone for a full standard deduction rollout.

• Political Debate: Expect lively debate from unions, business groups, and tax professionals over the fairness and size of any standard deduction.

• Budget Impact: Treasury estimates suggest a $2,500 standard deduction could cost the budget $5-7 billion annually in lost revenue—but proponents argue it will be partly offset by reduced rorting and admin costs.

The upshot? Stay alert to Budget announcements and ATO updates in the coming months. If a standard deduction is introduced for the 2025-26 financial year, it could change the way you plan, track, and lodge your deductions—potentially for the better.