What is WATO?
The Working Australians Tax Offset (WATO) is a new permanent non-refundable offset announced in Australia’s 2026-27 Budget. It offers up to AUD 250 off the tax bill for individuals earning income from work—including wages, salaries, and sole-trader business income—provided their net labour income exceeds the tax-free threshold.(aph.gov.au)
Key Features
| Feature | Details |
|---|---|
| Effective Date | Income years starting 1 July 2027 (i.e. FY2027‐28) |
| Amount | Up to AUD 250 per year |
| Eligibility | Australian residents with net labour income above the tax-free threshold |
| Interaction with LITO | Those also eligible for the Low Income Tax Offset (LITO) may gain a higher effective threshold up to ~$24,985 when combined with WATO(taxtracker.com.au) |
| Application | Automatic via tax return; no special forms needed |
How It Impacts Different Earners
- Average earner (AUD ~81,000): Combined with other scheduled tax cuts and the $1,000 instant deduction, total savings could reach AUD ~$2,816 annually from FY2027-28 compared to FY2023-24 settings.(pm.gov.au)
- Low-income earners: For workers near or under the tax-free threshold, WATO lifts the effective threshold by ~AUD 1,800, meaning more income is tax-free. With LITO, this could go up to around AUD 24,985 in tax-free income.(budget.gov.au)
What You Need to Do
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No action needed now: WATO is legislated in the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 and comes into force 1 July 2027.(legislation.gov.au)
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Budget and tax planning: Factor in AUD 250 less tax liability for future returns and incorporate into cash flow forecasts if you’re a salaried employee, contractor, or sole trader. Low-income workers should consider how WATO stacks with other offsets.
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Lodge normally: WATO will appear automatically on your assessment when you lodge your FY2027-28 return. You do not need to claim it via special forms.(austax.tools)
Example Scenario
Meet Anna, a part-time worker earning AUD 20,000/year. Under current settings, her income nets only modest tax, possibly zero after the tax-free threshold.
- Without WATO: She pays little to no tax, possibly just the Medicare levy.
- With WATO: She gets AUD 250 off any tax owed. If tax owed is less than AUD 250, the offset reduces it to zero. The effective threshold rises to nearly AUD 19,985.(taxtracker.com.au)
Bottom Line
WATO represents the largest permanent increase in the effective tax-free threshold for working income since 2012-13. It particularly benefits modest income earners by reducing tax liability, while higher earners also receive income relief. Regardless of income, you’ll see the savings when you lodge your 2028 return. Meanwhile, plan now, assess your income sources, and consult with a tax advisor if you operate via a trust or company.
Category: Tax Planning
TaxHome: Australia
Author: NomadicTax Research Team
ReadTime: 5-8 min
Published: true