Last updated: 12 May 2026
2026-27 Budget · Tax cuts
Working Australians Tax Offset: $250 cut from 2027-28
The 2026-27 Federal Budget introduces a new Working Australians Tax Offset (WATO) – a $250 annual offset for income earned from work, starting in the 2027-28 income year. Around 13 million workers will benefit, with the effective tax-free threshold rising to $19,985 (or $24,985 for workers eligible for the Low Income Tax Offset).
Who benefits and by how much
13m
Workers receiving the WATO
6.3 million are women.
$1,785
Rise in effective tax-free threshold
Largest permanent increase since 2012-13.
How the WATO works
A tax offset reduces the amount of tax you pay – not your taxable income. The WATO is non-refundable and targeted: it only applies against tax on income earned from work, not passive income from assets. The mechanics:
- Worth up to $250 per year per worker.
- Applies against tax on wages, salary, and active business income.
- Stacks with the existing Low Income Tax Offset for low earners.
- Estimated $6.4 billion reduction in receipts over the forward estimates.
The bigger picture for a worker on average earnings
Treasury models a worker on average earnings of $81,245. Stacking the three rounds of legislated tax cuts, the $1,000 instant deduction and the WATO:
| Year | Annual benefit vs 2023-24 settings |
|---|---|
| 2026-27 | $1,978 |
| 2027-28 | $2,496 |
| 2027-28 (with full instant deduction benefit) | Up to $2,816 |
Cumulative tax savings for a worker on average earnings are estimated at $38,977 between 2024-25 and 2036-37 relative to 2023-24 settings. The average tax rate for this worker falls from 21.9% in 2023-24 to 20.2% in 2027-28.
Why 'work' rather than 'all income'?
Statement 4 frames the package as a rebalancing of the tax system away from income earned on assets and toward income earned from work. The revenue raised from reforms to negative gearing, CGT and discretionary trusts (about $8.1 billion over the forward estimates combined) funds the WATO and the instant deduction.
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Frequently asked questions
What is the Working Australians Tax Offset?
The WATO is a new annual tax offset of up to $250 against income earned from work, starting in the 2027-28 income year. Unlike a deduction, it directly reduces the tax you pay rather than your taxable income.
Who gets the WATO?
Around 13 million Australian workers. The offset is targeted at income earned from work (wages, salary, business income from running a job), not income from assets like rent and capital gains.
Does the WATO interact with the Low Income Tax Offset?
Yes – they stack. A worker also receiving the full LITO has their effective tax-free threshold lifted to $24,985. For everyone else, the WATO alone lifts the effective threshold to $19,985 – an increase of $1,785 and the largest permanent rise since 2012-13.
What's the total benefit including the previous tax cuts?
After three rounds of tax cuts, the $1,000 instant deduction and the WATO, a worker on average earnings ($81,245) will be up to $2,816 better off in 2027-28 compared to 2023-24 tax settings. Cumulatively, $38,977 less tax over 2024-25 to 2036-37.
Are women particularly affected?
Yes – 6.3 million women are expected to benefit in 2027-28. Treasury modelling argues that women, particularly those with children, are more responsive to take-home pay changes, so the WATO is expected to support modest gains in labour-force participation.
Source: Budget Paper No. 1, Statement 4 (pages 163-165), Australian Treasury, 12 May 2026.
Disclaimer: This information is general in nature and does not constitute financial, legal, or tax advice. Calculations are estimates only and may not reflect your exact circumstances. Eligibility criteria and dollar amounts may change without notice. Always verify with the relevant government authority, your mortgage broker, or a licensed financial adviser before making decisions.