ATO (tax office) payments by credit card

[burrco]

Not sure of the logic here, plenty of companies reimburse expenditure made on employees credit card, the question is surely as to whether it is a deductable expenditure to the company rather than deductable to you?

The guidelines for companies are quite different to individuals

Credit card payment fee deductibility guidelines

The only bit that is problematic is

The CPF is deductible to the extent that:

• you incurred it as a result of paying an income tax liability and you did not borrow money from your card provider to make the payment
• you incurred it as a result of paying a goods and services tax, fringe benefits tax, luxury car tax or wine equalisation tax liability, and that liability arose in the course of gaining or producing your assessable income, or in the course of carrying on your business for the purposes of gaining or producing assessable income
• you incurred it as a result of making PAYG withholding payments where you can claim a deduction for the wages and salaries that gave rise to the withholding obligation
• you incurred it as a result of repaying your student assistance loans and then only to the extent that the expenses you paid using the student assistance loans were themselves deductible
• you incurred it as a result of repaying your employee's student assistance loan, the repayment is a fringe benefit, and the employee's wages are also deductible

Most of my company tax payments are for GST and PAYG withholding but there is a small amount related to PAYG Installments which are income tax related and hence may be caught under the first provison.

If they are company tax installments it will be deductible. I agree with Stephen65 that those points issued by the ATO are basically a poor attempt to consolidated different issues into one list. The first provision is only really relating to paye individuals - because even though, that particular clause, would also rule it out for a company, a company (or business) is still allowed to claim it as expenditure incurred in borrowing money to produce income.

The ID 2010/161 (as posted by Steven) is pretty clear: [TABLE="width: 100%"]
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[TD="width: 99%"]"Based on the facts, the card payment fee incurred by the taxpayer is a necessary step in the process of borrowing money from the credit card provider. It is an 'expenditure incurred in borrowing money' . . . "[/TD]
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I have claimed it myself and have advised clients likewise and view the issue as clear cut - however as always seek your own advice etc.

I think you are right; you could structure it so that you pay the company's tax bill plus surcharge on your own CC and then the company reimburses you and claims a deduction for the surcharge reimbursement. That way it would be neutral to you. If the surcharge would be deductible to the company if it paid it directly then a reimbursement of the same surcharge if paid on behalf of the company would probably also be deductible. Depending on the size of the company and the amount of tax the ATO might get curious as to why the company is using its employees CC's to pay its tax instead of its own CC or other financial resources.

Agree. There is no problem with a director/employee paying company expenses. For smaller companies (esp. "sole traders" operating under a pty ltd structure) this is quite common. The company can reimburse it or book it against the shareholder's loan account.

 

[Stephen65]

If they are company tax installments it will be deductible. I agree with Stephen65 that those points issued by the ATO are basically a poor attempt to consolidated different issues into one list. The first provision is only really relating to payg individuals - because even though, that particular clause, would also rule it out for a company, a company (or business) is still allowed to claim it as expenditure incurred in borrowing money to produce income.

I agree. The reference in the first dot point to "did not borrow money" appears to be an attempt to summarise the ATO's view of deductibility under 25-5 i.e. that any entity can only get a deduction under that section if it does not borrow because 25-5 has a specific exemption for borrowing costs.

What the list of points does not explicitly address is deductibility under 8-1 for sole traders and companies. Whoever drew up that list may be (wrongly) assuming that CC fees are not deductible under 8-1 (or 25-25) to anyone but the reason why its not deductible to wage and salary earners under 8-1 is not applicable to sole traders and companies. What the ATO has conspicuously failed to do so far is issue an official ruling or decision on the application of 8-1 to companies and sole traders. As a sole trader I will be claiming the CC fee because I believe its deductible to me under 8-1 for the same reasons interest on borrowings to pay tax is deductible.

 

[cove]

Last night I got busy paying a pile of taxes that were due later this month. In selecting the cards to use I went Visa, MasterCard and the finally some Amex cards where the month close off had just occurred. Getting a free period on a credit card is always a bit of an extra bonus. Sure a tax deduction is part of a taxpayers right of sharing and caring the cost with the ATO.
I did use 3 Amex cards so that the high limits are seen to be used as I think it is a case of use them or lose them scenario.
Amex is more costly at $625 per $50,000 compared with $240 for Visa and MasterCard but the points earn and the potential tax credit take the pain away.
If the payment is for a non deductible tax account I always use the cheaper card and I have two of those.

 

[Deleted User]

Last night I got busy paying a pile of taxes that were due later this month. In selecting the cards to use I went Visa, MasterCard and the finally some Amex cards where the month close off had just occurred. Getting a free period on a credit card is always a bit of an extra bonus. Sure a tax deduction is part of a taxpayers right of sharing and caring the cost with the ATO.
I did use 3 Amex cards so that the high limits are seen to be used as I think it is a case of use them or lose them scenario.
Amex is more costly at $625 per $50,000 compared with $240 for Visa and MasterCard but the points earn and the potential tax credit take the pain away.
If the payment is for a non deductible tax account I always use the cheaper card and I have two of those.

Is it just me or are we all suprised that AMEX has not reduced the surcharge for things such as this, seems hardly believable the cost difference on the surcharge between these cards...

Cove, what is the best conversion from AMEX to QFF, does one get "value" from using an AMEX in your said example...? Is the best AMEX to QFF still around the 2 points per dollar mark...?

 

[cove]

All the Amex cards I used earn 1.5 points per dollar when paying the ATO.
Look at it this way....if points cost 1 cent or more you are getting a brilliant result out of your point a dollar EDR card or any other generous Visa or MasterCard.
Lots of people let their points lapse just like so many people let gift cards expire as they are pretty lay back about lots of things.
If a quarter of the points expire then the Banks and the Airlines win out of this.
Then others redeem poorly for goods because they want some gizmo instead of a flight.
You win!

 

[KLN]

oh well, the time came. decided to pay my quarterly BAS and March PAYG before the 28th.
$53,361.00 X 3points = 160,083 points
$667.02 in taxes X 3points = 2,001points

loving it!!!!

 

[burmans]

As a sole trader I will be claiming the CC fee because I believe its deductible to me under 8-1 for the same reasons interest on borrowings to pay tax is deductible.

Agree, while I am by no means a tax experts my understanding of tax law from reading of some specific cases in the past is that interest/fees take on the nature of the transaction itself, e.g. a bank fee for an international transaction is deductable if the transaction is itself deductable (and not if it's not). Borrowing to pay taxes for businesses (unlike individuals) is regarded as a legitimate & hence deductable business expense and hence any charges (interest or fees) should be deductable under these long-held principles.

 

[Stephen65]

Pretty much. The key question for whether you can deduct interest on a loan is the use to which you put the money borrowed. If you use that money either to produce income or to carry on a business for the purpose of producing income then the interest is deductible. As an example: interest costs on a loan to buy the family home are not deductible but interests costs on a loan to buy a property you intend to rent out are.

Since the ATO have long held the view that the payment of tax is a necessary part of running a business to make income, they have allowed deductions under 8-1 for sole traders and companies for the interest cost of borrowing to pay tax.

 

[Duffa]

Of course. This is exactly what i do

Just watch you don't have more than 10k in credit on your card or you get zero points. Might even be less for your particular card. Check your T&Cs!!!

 

[cove]

Which card did that Duffa?
If you put a direct branded Amex credit card substantially into credit the card will stop working so no points for you while they produce a refund cheque.

 

[Duffa]

Citi select - it is in the terms and conditions on the citi website under useful forms.
Am on my mobile or would post the link.

 

[kpc]

Just watch you don't have more than 10k in credit on your card or you get zero points. Might even be less for your particular card. Check your T&Cs!!!

Citi select - it is in the terms and conditions on the citi website under useful forms.
Am on my mobile or would post the link.

Applies to the Signature card as well. News for me as I have been using the Signature card to pay off 2 rather large tax bills in excess of my credit limit. I was worried about this so I have been paying my tax bills in instalments, Bpaying money in, and then paying the next installments. At no time was my signature card in credit!

Eligible Transaction means any Retail Purchase which is made by the use of a Card or any other means permitted by Citi, excluding (but not limited to) transactions by way of Cash Advances, Balance Transfers, Special Promotions, fees, purchases of foreign currency and travellers cheques, foreign exchange and ATM/ Bank charges, interest charges, finance charges, government charges, insurance charges, payments to Citibank loan accounts (mortgage etc), purchases in excess of limits on the Account, transactions made in operating a business and if the Account is more than $10,000 in credit only, all other transactions.

 

[Rallygirl]

Unfortunately I still haven't got refund yet so assume ATO is waiting for my 2011 annual return to be lodged and/or the Mar BAS.

Just as an update - I had initally lodged my refund request in February. It wasn't until I lodged my Mar BAS that the requested refund amount was refunded back into my account.

I have been thinking that the amount that I had paid extra would not be a deductible expense as it is not really directly attributed to the payment of my taxes. Then when I received the refund that the ATO had for a while it included interest. Does anyone think that the excess credit card charges could therefore be deductible as it was a cost of earning the assessable interest income from the ATO?

 

[cove]

I looked and my points are all there.
Does anyone know what the maximum credit limit Citibank give on their Select card?

 

[oz_mark]

I looked and my points are all there.
Does anyone know what the maximum credit limit Citibank give on their Select card?

$50,000 on initial approval, then $100,000.

 

[amaroo]

I've joined the club - just paid my first ATO payment on Amex.....Oh, what a feeling

FWIW, SWMBO is a chartered accountant & took awhile to accept that you CAN pay the ATO via CC.....thanks to all Seems the letterhead is doing it's job:!:

 

[wafliron]

I looked and my points are all there.
Does anyone know what the maximum credit limit Citibank give on their Select card?

Seems that, like the "no business transactions", it's in the T&Cs but not strictly enforced.

 

[PLANT]

Just to confirm that unless you have a BUSINESS you cannot claim the CC Fee as a deduction?
So if I pay other peoples TAX via CC, I cannot seek a Tax deduction on the CC fee charged?

 

[wafliron]

I can see no logical difference when it comes to deductibility between (1) interest paid on a borrowing to pay tax and (2) CC fees incurred when you use a CC to pay tax. Both are a cost of obtaining funds to satisfy a tax bill and if the first is deductible to companies and sole traders then so should the second.

<snip>

Further, the reasoning used in these IDs to deny a deduction under s8-1 is reasoning that does not apply to sole traders and companies because as set out in the rulings about deductibility of interest on borrowings under 8-1 I linked to above (in particular IT 2582) the payment of tax IS considered to be part of the income earning processes of those entities, as that ruling states:

"...it is considered that the interest incurred on those borrowings is a normal incident of conducting that business. That is, such an expense is an expense incurred in carrying on that business and hence qualifies for deduction under [what was the former version of s8-1]"

On face value, as a non-accountant / tax lawyer, I would categorise paying PAYG liabilities, BAS, LCT, etc, as part of the process of operating a business / earning income (and hence costs incurred paying these would be deductible), whereas I would categorise paying company (income) tax as a result of operating a business / earning income, not part of the process (and hence not deductible). This seems to be consistent with how the ATO views income tax for wage earners.

However, after reading what you posted above it certainly seems that the ATO disagrees with my personal interpretation and that interest expenses incurred paying company (income) tax are deductible. I also agree with you that if interest expenses incurred paying company (income) tax payments are deductible, so are CC surcharges.

Thanks for the details info / analysis, very interesting.

PS: When it comes to companies to get a deduction for the CC fee the CC used will have to be the company's card. If you use your personal card to pay the company's tax bill then it's very difficult to see how the CC fee charged to you could be deductible to you because its not a cost of you earning your income.

I think you are right; you could structure it so that you pay the company's tax bill plus surcharge on your own CC and then the company reimburses you and claims a deduction for the surcharge reimbursement. That way it would be neutral to you. If the surcharge would be deductible to the company if it paid it directly then a reimbursement of the same surcharge if paid on behalf of the company would probably also be deductible. Depending on the size of the company and the amount of tax the ATO might get curious as to why the company is using its employees CC's to pay its tax instead of its own CC or other financial resources.

Again as a non-accountant / tax lawyer, I agree with this interpretation: CC surcharge expenses incurred by an individual due to paying company (income) tax (or any other form of business tax for that matter - PAYG liabilities, BAS, etc) would be non-deductible, but if the business reimburses the individual for those surcharge expenses then it becomes an expense to the business and is deductible.

That's certainly the interpretation I'm following: I've just recently switched from personally paying the CC surcharge expense on business tax payments put through my CCs to being reimbursed for them by the business, so that they can be claimed as a deductible expense by the business.

Is it just me or are we all surprised that AMEX has not reduced the surcharge for things such as this, seems hardly believable the cost difference on the surcharge between these cards...

I'm more surprised that the Visa/MC surcharge is so low: it's way below any blended merchant rate I've ever seen published. Additionally, I can't see how 0.48% is commercially viable for the banks providing high-points-earning cards - e.g. surely 1.33 KrisFlyer points costs CitiBank more than for 0.48 cents (not to mention that Citi won't be getting 0.48 cents for every dollar spent - both Optus and Visa need to take their cut - so they're earning maybe 0.30 cents? per $1).

I've been wondering for a while if the ATO is perhaps subsidising part of the merchant fee - particularly for Visa/MC - as they may feel it's worth the cost in return for receiving more tax revenue on time?

 

[cove]

Yes the business can repay the fee and it could take time to reimburse you seeing you get some credit days for free. This makes the transaction more commercially based if it is ever reviewed by you know who.