It might seem like an odd distinction to have a category of suitable credit cards for tax payments. But many individuals and almost all businesses need to make payments to the ATO, which, like all government bodies, charges a fee for the privilege of using credit cards for paying tax. So you need to know how to minimise that fee.
And many rewards points and frequent flyer credit cards exclude ATO payments from points earning, or only allow points to be earned at a very low rate (usually at half the rate for standard purchases, sometimes less). So what will also be discussed here is how to earn points on tax payments for minimum cost when using a credit card.
The surcharge percentages quoted in the following discussion were correct at the time of writing, but are subject to change. Please consult your accountant if you need confirmation that surcharges will be tax-deductible for your business.
Ways to pay the ATO and earn points
If you have a credit card that allows points to be earned on ATO payments, it is possible to earn rewards and frequent flyer points when you pay your ATO bill, whether it’s for personal or business income tax, PAYG, BAS payments or a HECS debt. There are several ways to make the credit card payment online, including:
- ATO EasyPay Service
- Through your MyGov account
- Via RewardPay
- Via B2Bpay
The ATO website offers a service known as EasyPay, which allows you to pay your tax bill using a credit card. This option is available to every kind of taxpayer, including incorporated businesses.
To pay your tax bill with EasyPay, you need to provide either your EFT (electronic funds transfer) code or your PRN (payment reference number) and your credit card details. The minimum payment amount is $10 and the maximum $20 million. (Congratulations are in order if you have a credit card with a limit which will accommodate the maximum amount.)
Depending on whether your credit card allows points earning on government payments, you'll earn either no points by paying the ATO this way, or earn points at half the rate applicable to normal purchases (sometimes less). And you'll pay a transaction surcharge of 0.73% for using a Mastercard credit card, 0.78% for using a Visa credit card, and 1.45% for using American Express.
Individuals and sole traders can also access the ATO’s payment options (including credit card payments) by logging in to their MyGov account and clicking on the ATO option in the ‘Your services’ section.
To pay through the MyGov/ATO portal you will need to select the tax account to which the payment is to be directed (e.g. Income Tax, or Activity Statement) and then enter the credit card details and payment amount.
The same disadvantages apply here as with EasyPay – zero points or points earned at half the normal rate or less, plus the credit card surcharges already mentioned.
RewardPay is a business-to-business payment service which facilitates the earning of credit card points when paying business expenses — including rent — with an American Express card. Both the payer and the payee need to have an ABN, so it can be used by sole traders and small businesses when paying the ATO, as well as by larger companies. RewardPay’s revenue source is the 2.15% (including GST) surcharge it makes on transactions up to $20,000. The percentage charged declines on a sliding scale, down to 1.65% for payments over $2M, and the fees should be tax-deductible for businesses in most cases.
Because the credit card payment is made to RewardPay (who then pay the ATO by bank transfer), there are two significant benefits. The first is that, since you are not paying the ATO directly with your American Express card, you will not need to pay the government's surcharge for credit card payments (although you will, of course, need to pay RewardPay's surcharge).
But the second and most important benefit is that you will earn points at your card's rate for normal transactions, because it doesn't count as a payment to the government but as a payment to RewardPay. So the card's points earning rate for government payments is effectively at least doubled – sometimes more – depending on the card. For example, a card which earns 2.0 Membership Rewards points/1.0 frequent flyer points for non-government spending and 1.0 Membership Rewards points/0.5 frequent flyer points for government spending, would still earn 2.0 Membership Rewards points/1.0 frequent flyer points for a payment ultimately going to the ATO.
B2Bpay works in a similar way to RewardPay, in that it makes payments to the ATO on behalf of businesses, using EFT or BPAY. Fees are charged based on the type of card used to send the payment to B2Bpay, starting at a 1.2% surcharge for using a standard Visa or Mastercard (1.55% for premium and corporate cards), and rising to 2.2% for Amex cards and 2.4% for Diners Club. As with RewardPay, points are earned at the normal rate, not the government rate, for credit card payments, the government's surcharge is avoided, and the B2B surcharge is usually tax-deductible for businesses.
But B2Bpay has two additional advantages. The first major advantage is has over RewardPay is that it accepts all major credit cards, not just American Express. And the second benefit is that, in addition to the points earned from your credit card provider, B2Bpay will also itself reward you with 1.0 Qantas Points for every $100 paid and up to 3.0 Qantas Points per $1.50 paid to B2Bpay bonus billers (e.g. Dell, Hewlett Packard, Lexmark, Endeavour Energy, Betta Electrical, Toll IPEC, Tasmanian Revenue Office, CSIRO, and hundreds of SMEs, but not theATO, sadly). So, you'll earn 1.0 Qantas Points per $100 paid to the ATO – not much, but better than nothing.
Working out if it's worth using credit cards to earn rewards on tax payments
Work out how much a rewards point or frequent flyer point is worth to you. This will largely depend on how you plan to redeem them, but as a rule of thumb, most reward points are worth 0.5 cents each if exchanged for retail gift vouchers and most frequent flyer points should be worth at least 1.3 points each if exchanged for long-haul flights, much more for business class seats.
If the cost of the ATO or RewardPay surcharge exceeds the value of the points earned, it would make more sense to pay by BPAY, or bank transfer, or using a debit card (although there is a small ATO surcharge, and definitely no points, for using a debit card). In the case of B2Bpay there are additional Qantas points to offset the cost of the surcharge – not too many admittedly, at the standard rate of 1.0 points per $100 (unless you have a huge tax bill).
Also, if your card has a monthly or annual points cap, make sure that the payment you're making will not see you exceeding the cap, otherwise you may receive significantly fewer points than you expected.
ATO payments tend to have a specific due date, but if there is any flexibility, leverage the benefit by timing the payment to occur at the beginning of your billing cycle, thus maximising the interest-free days.
For a more detailed explanation of points value vs surcharge cost, see the question 'When does it not make sense to use a rewards card for ATO payments?' in our FAQs section on this page.
Ways to pay the ATO and avoid a surcharge
It is not, of course, compulsory to use a credit card to pay the ATO, although it may be one of the most convenient, and and also a good way to delay payment of your tax bill without paying interest (provided you can afford to repay your card balance in full on or before the payment due date).
Other, cheaper ways to pay include an online bank transfer (no fee for most bank accounts, no ATO surcharge), BPAY (no fee for most bank accounts, no ATO surcharge) and debit card (ATO surcharge of 0.18% for Mastercard, 0.38% for Visa), over the counter at Australia Post or with a cheque in the mail. But none of these methods earns rewards or frequent flyer points.