What Tax Deductions Can Employees Claim in 2025-26?

If you earn a salary or wage, some of the money you spend to do your job can reduce the tax you pay. These amounts are called work-related deductions. When you lodge your return for the 2025-26 income year (1 July 2025 to 30 June 2026), each dollar you claim as a deduction is taken off your taxable income, which usually means a bigger refund or a smaller tax bill. This guide explains what employees can claim in 2025-26, the key rates set by the ATO, the records you need, and the mistakes that catch people out every year.

Why This Matters

Work-related deductions are one of the few ways employees can legally lower their tax. Miss a deduction you were entitled to and you simply pay more tax than you need to. Claim something you were not entitled to and the ATO can amend your return, charge interest, and in some cases apply penalties.

The rules also shift a little each year. For 2025-26, the working-from-home fixed rate is 70 cents per hour and the cents-per-kilometre rate for car expenses is 88 cents. And despite what you may have heard in the news, the proposed $1,000 "instant" tax deduction does not apply this year. It is planned to start from 2026-27 and is not yet law. For 2025-26, you still claim your actual expenses with proper records.

Who This Applies To

This article is for employees, anyone who earns salary or wages with tax withheld by an employer. That covers office workers, nurses, teachers, retail and hospitality staff, tradies on wages, FIFO workers, and hybrid workers who split their week between home and the office.

If you run your own business or work as a sole trader (say, you invoice clients under an ABN), different rules apply. The principles are similar, but the record keeping and claim methods differ, so get advice specific to your situation.

Key Rules for the 2025-26 Income Year

The Three Golden Rules

Before claiming anything, every expense must pass the ATO's three tests:

• You paid for it yourself and your employer did not reimburse you.
• It directly relates to earning your income, not a private or personal cost.
• You have a record to prove it, usually a receipt, invoice or bank record.

If an expense is partly private and partly for work, like a phone plan, you can only claim the work portion.

Working From Home: 70 Cents per Hour

If you work from home, the simplest approach is the ATO's fixed rate method. For 2025-26 the rate is 70 cents for every hour you work from home. That single rate covers your electricity and gas, home and mobile internet, phone usage, and stationery and computer consumables such as printer ink. Because those costs are bundled into the rate, you cannot claim them again separately.

Two things trip people up. First, you must keep a record of your actual hours as you go: a diary, timesheet, roster or spreadsheet. The ATO will not accept a year-end estimate like "8 hours a day, 2 days a week". Second, the rate does not cover your equipment: a desk, chair, monitor or laptop you bought yourself can be claimed on top. Items costing $300 or less can generally be claimed in full straight away; items over $300 are claimed gradually over several years (called depreciation).

If your actual running costs are high, you can instead use the actual cost method, which lets you claim your real expenses but requires much more detailed records.

Car and Travel Expenses: 88 Cents per Kilometre

Driving between two workplaces, to see clients, or between job sites can be claimable. For 2025-26 the cents-per-kilometre rate is 88 cents, for up to 5,000 work-related kilometres per car. You do not need receipts for this method, but you must be able to show how you worked out your kilometres, such as a diary of work trips. If you drive a lot for work, the logbook method may give you a bigger claim.

The big exception: your normal trip from home to work and back is a private expense, even if you live far away or do some work on the train. It is generally not claimable.

Tools, Equipment and Technology

Items you buy to do your job, such as tools, a work bag, a keyboard, protective gear or a laptop, are claimable to the extent you use them for work. The $300 rule applies here too: $300 or less can usually be claimed immediately, while more expensive items are depreciated over their useful life.

Clothing and Laundry

You can claim uniforms with a logo, protective clothing like steel-capped boots and hi-vis, and occupation-specific clothing such as a chef's jacket. You cannot claim ordinary clothes, a suit, black pants or plain office wear, even if your employer requires them. Laundry claims of up to $150 for eligible work clothing do not need written evidence, though you still need to show how you calculated the claim.

Self-Education, Union Fees and Other Costs

Courses, short seminars and subscriptions are deductible if they maintain or improve skills for your current job, for example a bookkeeper studying an advanced payroll course. Study to move into a completely new career is not deductible. Other common claims include union fees, professional association memberships, work-related journals, and the fee you paid a registered tax agent last year to manage your tax affairs.

Records: Keep Them for 5 Years

Keep your receipts and records for five years from the date you lodge. If your total work-related expense claims are $300 or less, you do not need receipts, but you must still be able to show how you worked out each claim.

Not sure what you can claim? OzLedger prepares tax returns for employees every day and knows exactly what the ATO accepts and what it flags. Let us find every deduction you're entitled to.

Common Mistakes to Avoid

• Claiming the daily commute. Home-to-work travel is private, no matter the distance.
• Estimating work-from-home hours. The ATO requires a record kept during the year; estimates are rejected.
• Double-dipping. Claiming phone or internet separately when the 70c fixed rate already covers them.
• Claiming reimbursed expenses. If your employer paid you back, there is nothing to claim.
• Claiming everyday clothing. Plain clothes are not deductible even if you only wear them to work.
• Copying last year's return. Rates and your circumstances change; the ATO compares your claims with others in your occupation and income range.
• Throwing out records too early. Keep everything for five years after lodging.

Practical Example: Priya's 2025-26 Deductions

Priya is a marketing coordinator in Parramatta earning $92,000. She works from home two days a week and keeps a simple spreadsheet of her hours, which totals 730 hours for the year. She also drove 900 kilometres during the year between her office and client sites, recorded in a diary, and paid $480 in professional association fees. In March she bought an office chair for $280, used only for work.

Her claims: working from home 730 hours × 70c = $511; car travel 900 km × 88c = $792; office chair $280 (claimed in full as it cost under $300); association fees $480. Total deductions: $2,063.

Because Priya's income sits in the 30% tax bracket (plus 2% Medicare levy), those deductions reduce her tax by roughly $660. Without her spreadsheet of hours, the entire $511 home office claim could have been denied. The record is what makes the claim stick.

Each dollar you claim as a deduction is taken off your taxable income, which usually means a bigger refund or a smaller tax bill.

Key Takeaways