Estimated reading time: 8 minutes
Key Takeaways
- The government has announced a brand-new $250 tax offset for working Australians and it could mean more money in your pocket from 2027-28.
- Called the Working Australians Tax Offset (WATO), it kicks in from the 2027-28 financial year and covers approximately 13 million workers.
- Most people will get the full $250 automatically when they lodge their 2028 tax return.
- WATO is part of a number of measures the Government has introduced, including the $1000 instant tax deduction. Read on to find out how much you could save and what it all means at tax time 2027 onwards.
What Is the Working Australians Tax Offset (WATO)?
The federal government announced in the 2026–27 Budget a new tax offset called the Working Australians Tax Offset, or WATO. It will be a permanent annual tax offset of up to $250 for Australians who earn an income from their job.
Contrary to popular belief, you don’t receive the WATO directly as a lump sum or even a cash payment. A tax offset directly reduces the amount of tax you owe. Think of it as a discount on your tax bill. If you owe $1,000 in tax and you have a $250 offset, you only pay $750 in tax. If you’re already getting a refund, a tax offset can make that tax refund bigger.
WATO applies from 1 July 2027, meaning it will first show up in your tax return for the 2027–28 financial year.
The government has announced WATO, but it still needs to pass through parliament — so it isn’t law yet.
Who Gets WATO and How Much Is It Worth?
Who is eligible?
The short answer: if you earn income from a job in Australia, you’re eligible.
WATO covers:
- Employees who earn wages or a salary
- Sole traders (on their net business income)
- People who earn personal services income
The government expects around 13.3 million Australian workers, the vast majority of the working population, to receive WATO. They estimate 97 per cent of those workers will receive the full $250 offset.
Workers who earn low income from work may receive a partial offset rather than the full amount. This is because WATO links directly to income you earn from work, so it scales with that income.
How much is WATO worth?
For most workers, WATO is worth $250 per year. It’s not a payment that lands in your bank account. It reduces your tax bill or increases your tax refund when you lodge your return.
One helpful way to think about it: WATO effectively raises your tax-free threshold for income. After WATO comes into effect, eligible workers will pay no tax on income up to $19,985.
Workers who also qualify for the Low Income Tax Offset (LITO) can see that threshold rise to as high as $24,985.
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How Does WATO Fit Into the Other Tax Cuts?
WATO doesn’t arrive by itself. It’s the fifth round of tax cuts the government is proposing. Here’s the summary of changes:
- Round 1 (from 1 July 2024): Tax rate on income between $18,201 and $45,000 dropped from 19% to 16%. This is already in effect and you can read more in our Stage 3 tax cuts blog.
- Round 2 (from 1 July 2026): That same rate drops again — from 16% down to 15%.
- Round 3 (from 1 July 2027): The rate drops once more, from 15% to 14%.
- Round 4 (income year 2026-27, claimed in your 2027 tax return): A new $1,000 instant tax deduction for work-related expenses.
- Round 5 (from 1 July 2027): WATO — the new $250 annual offset for working Australians.
Example: How WATO Affects a Normal Australian Worker
Meet Steven. He works full-time as a Personal Assistant and earns $72,000 a year.
Here’s how the five rounds of tax cuts stack up for Steven:
- Rounds 1–3 (tax rate cuts): Combined, these lower his tax bracket rate from 19% to 14% on income up to $45,000. Over the three rounds, this saves him around $1,350 per year from 2027–28.
- Round 4 ($1,000 instant deduction): Steven works from home several times throughout the year and drives to pick up items for his boss regularly, but he’s always been too busy to track his hours and kilometres.
From 2026–27, he can claim a flat $1,000 deduction without any records, which only saves him around $190 extra in tax.
Steven might actually be better off tracking his work from home hours and kilometres, as he could claim more than $1,000 with proper records.
- Round 5 (WATO): Steven automatically receives the full $250 offset when he lodges his tax return.
In total, from 2027–28, Steven could save $1,700 per year compared to what he paid in 2023–24. He won’t need to do anything special — Etax automatically applies the offsets and deductions when he lodges his return.
Want to have a look at how much income tax you could save? The ABC has put together a handy calculator here.
What Do You Need to Do at Tax Time?
For most people, you don’t need to do anything differently.
Etax automatically applies WATO to your return when you lodge in July 2028. The Etax return will calculate it for you based on your income from work. You won’t need to fill in extra forms or make any special claims.
If you want someone to handle everything for you and make sure it’s right, a registered tax agent will ensure nothing gets missed. At Etax, you can lodge your return online with the support of qualified tax accountants, who check your return before it goes to the ATO.
When Will You See WATO in Your Tax Return?
WATO applies to income earned between 1 July 2027 to 30 June 2028. That means you’ll first see it when you lodge your 2028 Etax return — the one you’ll lodge after 1 July 2028.
The $1,000 instant tax deduction, on the other hand, starts earlier, from the 2026–27 income year (for returns you lodge after 1 July 2027).
Here’s a simple timeline:
| Financial Year | What’s new? | When you’ll see it |
| 2025–26 | No new changes. (Tax rate 16% on $18,201–$45,000 continues from 2024) | Already in place |
| 2026–27 | Rate drops to 15% on $18,201–$45,000. The $1,000 instant tax deduction applies to income earned this year | Claim the $1,000 deduction in your tax return lodged from July 2027 |
| 2027–28 | Rate drops to 14%, WATO ($250 offset) begins | Claim the WATO in your tax return lodged from July 2028 |
How Does WATO Compare to the Low Income Tax Offset (LITO)?
Australian residents who earn less than $66,667 per year can claim the Low Income Tax Offset (LITO). The offset reduces the amount of tax payable by a maximum of $700 for individuals who earn less than $37,500 per year. If you earn between $37,501 and $45,000 per year, the offset reduces based on your income (you get $700 minus 5 cents for every $1 above $37,500). A maximum offset of $325 is available to those earning between $45,001 and $66,667 ($325 minus 1.5 cents for every $1 above $45,000).
The offset can only reduce tax payable to nil – any excess offset is not refundable. Also, if you have an outstanding tax debt, LITO will reduce that debt rather than be paid to you as a refund.
Frequently Asked Questions
WATO will be a new permanent annual tax offset of up to $250 for Australians who earn income from a job. It has been announced in the 2026–27 federal Budget and is scheduled to apply from 1 July 2027. It reduces the amount of tax you owe when you lodge your return.
You’ll first receive WATO when you lodge your tax return for the 2027–28 financial year. That’s the return you lodge after 1 July 2028.
No. WATO is applied automatically when you lodge your tax return. If you use Etax, it’s calculated automatically based on your income from work.
Most working Australians qualify, including employees, sole traders, and people earning personal services income. The government predicts that 97% of eligible workers will receive the full $250.
No. A tax offset reduces the tax you owe. It’s not income or a cash handout. Instead, think of it as a discount on the tax you pay to the ATO.
Yes, it can. WATO is a $250 tax offset, meaning it reduces what you owe in tax. If your tax is already overpaid during the year, WATO will increase your refund by up to $250. If you usually owe money at tax time, it will reduce that amount instead.
Yes. Sole traders are eligible for WATO based on their net business income.
The government has announced WATO, but it still needs to pass through parliament — so it isn’t law yet. All information in this article is based on Budget announcements and may be subject to change.
They’re two separate benefits. The $1,000 instant deduction reduces your taxable income (which then reduces your tax). WATO directly reduces your tax bill. Both are available to most working Australians.
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