ATO (tax office) payments by credit card

[Jack_OC]

Where it may matter, is that the authorised banking operations that GE have in Australia is confined to being a credit card acquirer and credit card issuer. They have to be a bit careful about how they will allow credit balances to occur due to their license.

I have no idea if that's true or not, but if it is, they would need to prevent people from paying cards into credit full stop.

In any case, the current debate is whether it's "abuse" of the card to pay tax bills that are greater than your credit limit. As I said, you can easily do that without ever putting your card in credit, so the act of putting your card in credit has no bearing on this question either way.

The only reason for putting your card in credit is to stay within the ATO rules on fee deductibility, it has nothing to do with attempting to pay more than you can afford or more than the credit card provider wants you to pay, or anything else. Even if I had a million dollar credit limit, I would still have loaded my card in credit before paying my recent ATO bill!

The bottom line is, if loading your card in credit creates a problem for any credit card provider, they could easily stop customers putting cards into credit, and/or stop awarding points if the account is in credit. If a card provider instead chooses to allow me to load my card up into credit and still award points, then I can only assume they are happy for me to do this.

 

[burmans]

All my credit cards are paid off, perhaps that is an aspect (although there would have been nothing from stopping me maxing them out on top of the new loan).

Lenders are required under Responsible Lending laws to take account borrowers capacity to pay. Existing credit is required to be a factor in this calculation. You should be aware that under changes to the Privact Act due to come into law 12th March next year, credit providers will start contributing account details into the credit bureaus which supports this responsible lending requirement. So credit providers who are participating in this Comperehensive Reporting regime (likely to be most significant ones over time, though not necessarily day 1) will be able to see all your accounts and their limits.

Not though that this is limit not balance, the reason for limit is that in theory you can lend to the limit and the government and privacy advocates were opposed to balance being disclosed. How lenders interpret this data is not disclosed but it would certainly appear that high limits would be a bad thing as lenders will assume that some if not most of this limit is being used and hence your abaility to repay is reduced to the extent that you need to make payments on your existing (assumed) debt. Also because the fact that you have paid off your balance is not visible this is not likely to help much given decsioning systems are in general automated.

 

[docjames]

What don't you understand? Your example is actually a perfect illustration of what I meant. As you point out, every dollar of credit card limit you have is a dollar less that you can borrow on your home loan. Therefore, with a very high credit card limit (or combined limits across all cards), you will have difficulty getting a home loan at the upper end of the range where lenders would otherwise approve.

Your point seems to be that in your particular case, you didn't care that your borrowing capacity was reduced. That's great, but presumably you can understand that some people might care about that? For example, in my case, if I did not actively reduce my credit card limits a while ago, I would not have been able to refinance my home loan with a new lender (I know that because they told me - I had to reduce the limits and provide evidence that I had done so).

I think if you're looking at a loan and you're so marginal that yy,yyy less than x,xx_,xx_ (or aaa,aaa vs b,bbb) makes it fall over, it was marginal to begin with.

I don't believe that makes getting the home loan "difficult", it has a (marginal) impact on borrowing capacity for the new loan.


Never mind, i think it comes down to phrasing and we're getting off topic.

 

[Jack_OC]

I think if you're looking at a loan and you're so marginal that yy,yyy less than x,xx_,xx_ (or aaa,aaa vs b,bbb) makes it fall over, it was marginal to begin with.

I don't believe that makes getting the home loan "difficult", it has a (marginal) impact on borrowing capacity for the new loan.


Never mind, i think it comes down to phrasing and we're getting off topic.

Sorry, but it most certainly does not have a marginal impact.

First of all, you seem to be ignoring the fact that I said there is a problem if you have "several cards with high limits". Just to be more specific, if I had accepted all credit limits offered to me and left them as they were, my total combined limit would be more than $200k. I have deliberately reduced that to less than $50k, ie a difference of >$150k.

Here are a few hypothetical scenarios according to my bank's borrowing power calculator online. A single person with no dependents earning $150k per year could borrow the following amounts with different total credit card limits:
- credit card limit $0; borrowing power $1.015 million
- credit card limit $25k; borrowing power $945k
- credit card limit $50k; borrowing power $876k
- credit card limit $75k; borrowing power $806k
- credit card limit $100k; borrowing power $736k

It won't even allow me to enter a credit limit higher than $100k (no matter how high the applicant's income is).

 

[cove]

I guess that is good news. I think our joint credit card limits are about xx_k but I wouldn't want a mortgage of a non tax deductible variety. You just need to pay that type of loan off as quickly as possible so you can get on with living.
Taxes on the other hand are relentless so it is always nice to get a flight out of that area.

 

[DaveB]

Credit card limits seem to have a double whammy effect if you are self employed which classification seemingly covers everyone from a home handyman to Gerry Harvey.
My business banker is having fun with their credit cards department reinstating a card limit from $40k to $55K I foolishly dropped a few months ago when Select was the magical do all card. The 6 figure card limit elsewhere is no doubt the problem. They are more than happy though to issue a 7 figure mortgage loan amount so I can buy the business premises with final payment due when I turn 82.

 

[Jack_OC]

They are more than happy though to issue a 7 figure mortgage loan amount so I can buy the business premises with final payment due when I turn 82.

82? That's just a spring chicken in their eyes!

http://www.theage.com.au/business/why-youre-never-too-old-for-the-banks-20130531-2nhi7.html

 

[attimo69]

Right, so youre argument is that when the banks want to they can rigidly enforce the Terms and Conditions and insist these are the only rules they should play by yet when they want they can insist that they get to interpret these rules so activities clearly within the rules are regarded as abuse. Which bank did you say you worked for?

Thankfully that is not the approach taken by any regulators or courts. Their approach is that if it's not in the Terms and Conditions, it's not in the Terms & Conditions. Incidentally that interpretation is not a view as you recognise your opinion is, thats a fact that something not in the T&C's really isn't in the T&C's.

Yep, I get it. If it's not in the Ts&Cs, then it's fair game. Yes, people should be encouraged to skilfully take advantage of the Ts&Cs (or lack of) to boost their points balances as much as humanly possible, with whatever tactics they can. It is only a game of course.

Now the banks are waking up. Now they're changing their Ts&Cs. Now 1:1 pts are more like hens teeth. It's a win-win.

wait...

 

[burmans]

Yep, I get it. If it's not in the Ts&Cs, then it's fair game. Yes, people should be encouraged to skilfully take advantage of the Ts&Cs (or lack of) to boost their points balances as much as humanly possible, with whatever tactics they can. It is only a game of course.

Now the banks are waking up. Now they're changing their Ts&Cs. Now 1:1 pts are more like hens teeth. It's a win-win.

wait...

Yes of course the banks will act in their best interest, that's hardly new. The question we are debating here is why you think we shouldn't.

 

[attimo69]

Yes of course the banks will act in their best interest, that's hardly new. The question we are debating here is why you think we shouldn't.

perhaps if people had been less creative , the banks wouldn't have tightened things up. Everyone would still be benefiting. This way, everyone's losing. (except the banks of course)

 

[Jack_OC]

perhaps if people had been less creative , the banks wouldn't have tightened things up. Everyone would still be benefiting. This way, everyone's losing. (except the banks of course)

Actually I would say Citi are losing, Westpac are winning, and I'm somewhere in the middle (still getting points, but having to pay more for them).

The bottom line remains that either it was viable for Citi and their partners to award points on ATO transactions or it was not. If not, they were not going to do keep doing it, even if everyone always stayed within their credit limit.

 

[docjames]

Sorry, but it most certainly does not have a marginal impact.

First of all, you seem to be ignoring the fact that I said there is a problem if you have "several cards with high limits". Just to be more specific, if I had accepted all credit limits offered to me and left them as they were, my total combined limit would be more than $200k. I have deliberately reduced that to less than $50k, ie a difference of >$150k.

Here are a few hypothetical scenarios according to my bank's borrowing power calculator online. A single person with no dependents earning $150k per year could borrow the following amounts with different total credit card limits:
- credit card limit $0; borrowing power $1.015 million
- credit card limit $25k; borrowing power $945k
- credit card limit $50k; borrowing power $876k
- credit card limit $75k; borrowing power $806k
- credit card limit $100k; borrowing power $736k

It won't even allow me to enter a credit limit higher than $100k (no matter how high the applicant's income is).

I think you need a new bank.

In my case they were happy to reduce by exactly the amount of the other credit cards (which FWIW were $30k and $5k).

In my case (using your numbers)

Borrowing power 1.015 --> 985k.


I think this might be an instance where a relationship with a particular institution over a long term (and a good track record) helps. I don't think the online (bank website) "borrowing calculators" are the be-all and end-all of what a bank may/may not offer.

 

[Jack_OC]

I think you need a new bank..

I think you need to read my posts again, as you seem to have forgotten what I actually wrote in the first place!

In my case they were happy to reduce by exactly the amount of the other credit cards (which FWIW were $30k and $5k).

In my case (using your numbers)

Borrowing power 1.015 --> 985k.

Firstly, your example is completely different to the scenario I referred to ("multiple cards with high limits"). Clearly if you're talking about $30k in the context of a $1mil + loan, it's not going to make a huge difference. What point are you trying to make there?

Secondly, I don't think a 1:1 adjustment is in any way typical, as most if not all financial institutions calculate borrowing power on the basis of serviceability, and servicing a $30k credit card debt (for example) is much more difficult than servicing $30k on a home loan. Also, one form of debt is secured, while the other isn't. As such, it would be bizarre if any bank had a simple linear calculation method that treated both types of debt in the same way, and frankly I doubt if that is the case with your bank either. I imagine the reality is that your credit card limit was so small relative to your total borrowing power that the algorithm resulted in an apparently linear change in that particular example, or it was just manually adjusted as it was too small an amount to matter either way. If you had gone back to them and said you had other credit cards with a combined limit of 15-20% of the amount you were looking to borrow, I would be willing to bet the answer would have been very different. Anyway, since your example tells us nothing about the impact of having "multiple cards with high limits", I don't really know why you're trying to use it to contradict what I said.

Thirdly, even if your borrowing power was reduced in a linear fashion in line with an increasing credit card limit, the impact would still very definitely not be marginal if you have "multiple cards with high limits". In the hypothetical example above, borrowing power would still reduce from $1.015million to $815k as the credit card limit increased from $0-$200k. For someone on that income looking to refinance a loan of, say $850k or more, it would be difficult for them to get approval if their credit card limit was towards the top end of that range. That's all my original comment was getting at.

I think this might be an instance where a relationship with a particular institution over a long term (and a good track record) helps. I don't think the online (bank website) "borrowing calculators" are the be-all and end-all of what a bank may/may not offer.

Helps with what? As I've already explained, I already had a home loan (with Westpac) but I just wanted to refinance for a better deal (to HSBC). I successfully did so, by reducing my credit card limits, which caused me no hardship whatsoever. That switch saved a very substantial amount of money, so I have no regrets whatsoever about not continuing to pay more interest that I need to in order to build a long term relationship with Westpac. Funnily enough I'm now switching again for exactly the same reason. As I also already explained, my comments were based on real life experience, as HSBC told me they would only approve the refinance if I reduced my credit card limits substantially. The figures from the online calculator were simply to illustrate the potential impact for your benefit.

 

[burmans]

perhaps if people had been less creative , the banks wouldn't have tightened things up. Everyone would still be benefiting. This way, everyone's losing. (except the banks of course)

Perhaps is a somewhat meaningless word in this context, either you have an inside knowledge of this or you are a conspiracy theorist indulging in meaningless speculation.
The banks are quite prepared to wear the biggest way people "benefit" out of credit cards, I.e. interest free period if you pay out in full, not everyone benefits from that. In fact quite the opposite, it's clearly designed to leverage one group against others. How is it different to leverage that opportunity (and I'd assume many people here do as educated financially literate consumers) and this one? Where is the common benefit in that? As for the banks, pleased to near you finally admit at the end of the day they are in it for themselves.

 

[wafliron]

It's the difference between what's technically within the bounds of the rules and what wouldn't pass the 'front page test'. Yeah, I get it, many people think that if it's not specifically forbidden, then Go For It, open slather. I personally believe that when the 250 kg customer goes to the all-you-can-eat buffet every second day and gorges themselves til they're full - that's abuse. As they say, it's an offer, not a challenge. It's not what the restaurant owner intended, and may, eventually impact on all the other customers as the restaurant owner re-considers their offer.

Clearly we disagree, but I still can't see the logic in your position here. What are T&Cs for, if not to define what is and is not allowed - be it for a credit card, a restaurant buffet, or anything else? That's why they exist.

In your example, how is the 250kg guy meant to know that he's acting outside the "spirit" of the offer as put together by the restaurateur? Is he meant to somehow magically deduce that it was designed for "regular sized" people to enjoy a buffet no more than once a week, and not to be used whenever people of any size wish to? How could he know that? The fact is that he couldn't, so he abides by whatever the terms of the offer are. If those terms result in the restaurant losing money then that is not the customer's fault - it's the restaurants for not properly considering the terms of their offer, the way it may be used, the financial consequences, etc. And if they don't work, a sensible restaurant will change them, at which time the change is also clear to the 250kg customer and he should (or will be forced to) stop what he was doing previously.

My point is, the behaviour of some customers already has made the restaurateurs reconsider their offers. Sure, paying tax with a cc is a nifty way of making points, but I'm pretty sure that it wasn't meant to be a points factory for high income earners/business owners. Now, we see the fruits of our labours: CC companies cutting back, being stricter, tightening up their Ts&Cs.

As they should, and as is their right, if they consider that people shouldn't be paying tax on CCs. I don't see the problem here, again? The issuers set the rules, the customers abide by them, the issuers change the rules if they see fit, the customers abide by the new ones (and possibly switch to another issuer if they wish, thanks to this wonderful thing called competition).

I maintain (clearly against the tide here) that paying your CC into credit, by many multiples of one's credit limit, purely to manufacture points, to a total which is many times that which the card could be predicted to generate based on its credit limit could quite conceivably and fairly be considered abuse by the companies providing the credit.

You're also mixing up your arguments here. Up until now, you've been objecting purely to people putting a card into credit. Now - I assume because some of us have pointed out the very valid reasons people may have for doing this, outside of paying tax - you're intertwining that specifically with doing it to pay tax bills. Neither argument makes much sense individually, and they certainly don't when combined together to form one specific situation.

You're also continuing to ignore the points that myself and others have made about it being incredibly simple for banks to bar credit cards from being put into credit if they wish... but yet they're not doing it?

Yep, I get it. If it's not in the Ts&Cs, then it's fair game. Yes, people should be encouraged to skilfully take advantage of the Ts&Cs (or lack of) to boost their points balances as much as humanly possible, with whatever tactics they can. It is only a game of course.

Now the banks are waking up. Now they're changing their Ts&Cs. Now 1:1 pts are more like hens teeth. It's a win-win.

wait...

perhaps if people had been less creative , the banks wouldn't have tightened things up. Everyone would still be benefiting. This way, everyone's losing. (except the banks of course)

See my comments above, again, especially the ones about banks having the right to change T&Cs to make the rules clear for customers, and also customers having the right to switch banks / products if they don't like it.

More importantly, though: are you actually complaining about banks changing their T&Cs to shut down tax payments? You've spent a couple of weeks running an argument that paying tax on CCs (or paying a card into credit, or doing both together - I'm not 100% sure anymore) is abuse - so surely you aren't also "abusing" the system? If you are then you're a giant hypocrite - and if you aren't then it shouldn't bother you in the slightest that it's becoming harder, so I'm not sure why you're complaining about it.

 

[wafliron]

When I last took a new home loan (had an existing loan) and wanted a quote on max borrowing capacity, I got an answer from my existing banking provider (CBA) of say x,xx_,xx_. When I pointed out that they may not have been aware of another CC I had (amex), and how would this affect the borrowing capacity, the answer was x,xx_,xx_ minus yy,yyy (the amex credit limit). A tiny % and 1:1 reduction in the original amount.

Are you sure the max lend was reduced by exactly the credit limit? That would be very, very unusual.

For secured lending, typically the total amount of other outstanding debts is not of big concern to lenders. What they're much more interested in is serviceability - the free cash flow you have available to repay the new loan.

In the case of credit cards, the industry norm (at least for cars and property) is to take 2.5% - 3.5% of your total credit limit and treat that as an expense when determining your serviceability - so if your free cash flow is $5,000/month and you have $100,000 of CC credit limit (regardless of how much is used), they would typically assume an additional monthly expense of say $2,500 and reduce your free cash by that amount, leaving a nominal amount of $2,500/month to repay the new loan.

Hence, the amount they will lend you is not reduced by $100,000, but rather by whatever difference in principal is required to reduce the loan repayments from $5,000/month to $2,500/month (which would be a lot more than $100,000). The "table" posted by Jack3193 showing max lends vs credit card limits demonstrates this pretty well.

I'm not saying every lender is precisely the same in this regard, but the above is most definitely the "normal" way lenders look at credit card limits. I've never had the logic behind a few percent of the credit limit being treated as an expense 100% confirmed to me, but I'd imagine it's to do with the minimum monthly repayment levels on most credit cards being in this range - so, if you used up all $100,000 of your credit limit, you could still afford to make the minimum monthly repayments and repay your new loan.

Yes - 0.33% with Visa, and 0.35% with Master.

Interesting, thanks for confirming. I wonder if it's the same for all merchants that fall into the 0.33%/0.35% categories (not knowing exactly what category your business is in). If it is the same for government, someone is taking a big hit when anyone pays a tax bill with anything other than a bog stock base level card (do they even exist anymore?! ) - I'd guess the acquirer based on your information?

 

[sumthinfornuthin]

Are you sure the max lend was reduced by exactly the credit limit? That would be very, very unusual.

For secured lending, typically the total amount of other outstanding debts is not of big concern to lenders. What they're much more interested in is serviceability - the free cash flow you have available to repay the new loan.

In the case of credit cards, the industry norm (at least for cars and property) is to take 2.5% - 3.5% of your total credit limit and treat that as an expense when determining your serviceability - so if your free cash flow is $5,000/month and you have $100,000 of CC credit limit (regardless of how much is used), they would typically assume an additional monthly expense of say $2,500 and reduce your free cash by that amount, leaving a nominal amount of $2,500/month to repay the new loan.

Hence, the amount they will lend you is not reduced by $100,000, but rather by whatever difference in principal is required to reduce the loan repayments from $5,000/month to $2,500/month (which would be a lot more than $100,000). The "table" posted by Jack3193 showing max lends vs credit card limits demonstrates this pretty well.

I'm not saying every lender is precisely the same in this regard, but the above is most definitely the "normal" way lenders look at credit card limits. I've never had the logic behind a few percent of the credit limit being treated as an expense 100% confirmed to me, but I'd imagine it's to do with the minimum monthly repayment levels on most credit cards being in this range - so, if you used up all $100,000 of your credit limit, you could still afford to make the minimum monthly repayments and repay your new loan.



Interesting, thanks for confirming. I wonder if it's the same for all merchants that fall into the 0.33%/0.35% categories (not knowing exactly what category your business is in). If it is the same for government, someone is taking a big hit when anyone pays a tax bill with anything other than a bog stock base level card (do they even exist anymore?! ) - I'd guess the acquirer based on your information?

I still see this payment of tax via credit card as a deliberate act by the ATO to transfer liability for tax that is due to them, from them to the credit card provider and if .48 % of the tax is the fee they charge us covers most of the fee they cop from the credit card company then the shortfall ( if any) is simply a "cost of doing business" and no different to employing extra staff to chase bad debts..

I also see nothing wrong either with putting the card into credit. At the end of the day there are rules that apply and if the rules allow it then it is legit. FWIW

Just remember the sun does not always shine so make hay whilst it does.....and I will wait for the contrary responses.

 

[Pukka]

I still see this payment of tax via credit card as a deliberate act by the ATO to transfer liability for tax that is due to them, from them to the credit card provider and if .48 % of the tax is the fee they charge us covers most of the fee they cop from the credit card company then the shortfall ( if any) is simply a "cost of doing business" and no different to employing extra staff to chase bad debts..

I also see nothing wrong either with putting the card into credit. At the end of the day there are rules that apply and if the rules allow it then it is legit. FWIW

Just remember the sun does not always shine so make hay whilst it does.....and I will wait for the contrary responses.

Absolutely it gets the money in the door which is what they want, if people don't pay their credit cards off its someone else's problem not theirs.

 

[hummel]

Guys,

Just wanted to confirm that Citibank is no longer issuing points for ATO transactions? Regardless of card type.

Now have Citi Signature and Amex Plat Edge at my disposal but if no/little points not really worth it I suppose...

 

[legroom]

Guys,

Just wanted to confirm that Citibank is no longer issuing points for ATO transactions? Regardless of card type.

Now have Citi Signature and Amex Plat Edge at my disposal but if no/little points not really worth it I suppose...

See post #1892 re Signature

That was in April, so take care.