ATO (tax office) payments by credit card

[Newk]

Different people have different needs for different lengths of string.....ably being demonstrated since I first pointed it out . The "best" one is the one that allows you to earn points in a/the program of your choice at a cost that is suitable at the time.

 

[Jack_OC]

PS: $1 = 2 Westpac points, 2 Westpac points = 1 FF point on any airline that they transfer to (Singapore, Velocity, Cathay etc) so I just worked on $1 = 1.5 or 0.625 FF point and ignored the Westpac 2 for 1 in, 1 for 2 out conversion in the middle.

Your end result is right, but it's not correct that "$1 = 2 Westpac points". $1 = 3 Westpac points if you pay with Amex, or $1 =1.25 Westpac points if you pay with the Altitude Black Mastercard. That's the whole reason you get more points by using Amex, as the transfer rate is the same either way (2 Westpac points = 1 FF point). But yes, the key point is that ultimately $1 = 1.5 (Amex) or 0.625 (Black MC).

 

[Plutonus]

(tax deductible if you preload the card in credit before you pay)

I think everyone needs to seek their own professional advice before thinking anything is tax deductible. Aside from that, if it's a legitimate business expense it wouldn't matter whether the card was pre-loaded or not.

Interesting that Citi has stopped awarding points... obviously all those AMEX converts have hit them hard

 

[Jack_OC]

I think everyone needs to seek their own professional advice before thinking anything is tax deductible. Aside from that, if it's a legitimate business expense it wouldn't matter whether the card was pre-loaded or not.

I'm talking about personal tax, not business. Why do you say it wouldn't matter if the card was pre-loaded or not? According to the ATO:

When can you claim a tax deduction

The CPF [card payment fee] 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

Credit card payment fee deductibility guidelines

There are also other examples given for other types of tax and other scenarios.

My understanding of the above is that if you preload your card so it's in credit, then you are not borrowing money from your card provider, and therefore the CPF is deductible. I have run this by my accountant and he agrees, although he has not personally seen anyone do this before in practice. Anyone know differently?

 

[Deleted User]

I'm talking about personal tax, not business. Why do you say it wouldn't matter if the card was pre-loaded or not? According to the ATO:

When can you claim a tax deduction

The CPF [card payment fee] 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

Credit card payment fee deductibility guidelines

There are also other examples given for other types of tax and other scenarios.

My understanding of the above is that if you preload your card so it's in credit, then you are not borrowing money from your card provider, and therefore the CPF is deductible. I have run this by my accountant and he agrees, although he has not personally seen anyone do this before in practice. Anyone know differently?

My accountant's opinion is that not only the credit card payment fee is tax deductible, but also any interest paid on the card if the balance not paid in full at the end of the month...

Get your own advice, but I am comfortable with what I have been told by my accountant

 

[Jack_OC]

My accountant's opinion is that not only the credit card payment fee is tax deductible, but also any interest paid on the card if the balance not paid in full at the end of the month...

Get your own advice, but I am comfortable with what I have been told by my accountant

Are you talking about income tax? If so, that doesn't seem to make sense, as by definition you only incur interest if you borrowed the money, and it clearly states that the fee is deductible if "you did not borrow money from your card provider to make the payment". But that's just for income tax, there appears to be no such criterion when it comes to other types of tax.

 

[Deleted User]

No, business tax, GST / PAYG etc

Edit: I am a sole trader...

 

[Jack_OC]

No, business tax, GST / PAYG etc

Edit: I am a sole trader...

Ok, that makes sense then. The "no borrowing" rule only seems to apply with income tax, so I'd be interested to know if anyone has direct experience of doing this and claiming the deduction.

 

[angusburns]

Yes, sorry, I was late for dinner... type in haste, repent at leisure!

 

[Plutonus]

I'm talking about personal tax, not business. Why do you say it wouldn't matter if the card was pre-loaded or not? According to the ATO:

When can you claim a tax deduction

The CPF [card payment fee] 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

Credit card payment fee deductibility guidelines

There are also other examples given for other types of tax and other scenarios.

My understanding of the above is that if you preload your card so it's in credit, then you are not borrowing money from your card provider, and therefore the CPF is deductible. I have run this by my accountant and he agrees, although he has not personally seen anyone do this before in practice. Anyone know differently?

My apologies, as most people posting in this thread generally are talking about business tax liabilities and your post didn't specify, I assumed. Nevertheless I'm not doubting yours or anyone else's advice per se, just suggesting everyone seek their own advice as tax can be a highly individual thing and penalties can apply for doing the wrong thing, whether intentional or not (as I'm sure we all know). I'm searching the private ruling register to see if it has come up before...

It's an interesting one because you could get into some grey areas quite quickly. What if you had a charge from Woolworths for $5, then you pre-loaded $100,000, paid ATO, next day bought a $5,000 couch, $3,000 fridge, etc. Could be argued you were prepaying/paying off other items on that same statement

 

[Jack_OC]

My apologies, as most people posting in this thread generally are talking about business tax liabilities and your post didn't specify, I assumed. Nevertheless I'm not doubting yours or anyone else's advice per se, just suggesting everyone seek their own advice as tax can be a highly individual thing and penalties can apply for doing the wrong thing, whether intentional or not (as I'm sure we all know). I'm searching the private ruling register to see if it has come up before...

It's an interesting one because you could get into some grey areas quite quickly. What if you had a charge from Woolworths for $5, then you pre-loaded $100,000, paid ATO, next day bought a $5,000 couch, $3,000 fridge, etc. Could be argued you were prepaying/paying off other items on that same statement

I don't see it as any more of a grey area than many other things that people routinely claim as deductions on their personal tax returns - most notably things like internet and phone charges under "home office", for which people are required to estimate the proportion of business versus personal usage. The ATO guidance on the CPF applies the same principle " Where the CPF relates to liabilities that are both deductible and non-deductible, the CPF would have to be apportioned on a fair and reasonable basis". So to use your example, if you were in effect $92k in credit when you paid your $100k bill, then it would seem fair and reasonable to say that 92% of the CPF is deductible.

Also, as per the link in my last post, ATO has a specific section on their website stating that the CPF can be claimed as a deduction as long as certain criteria are met, so it's not like this is some sort of inventive manipulation of the rules or anything. As long as your circumstances match the criteria that ATO specify, it's hard to see there being a lot of risk there. In any case, I'm assuming anyone with a large tax bill to pay does have an accountant and therefore is getting their own personal advice.

 

[Plutonus]

I don't see it as any more of a grey area than many other things that people routinely claim as deductions on their personal tax returns...

People will do whatever they can get away with

I did find a ruling (although about BAS, same principles it seems though) where the ATO found: If a taxpayer uses a credit card and that use results in the card issuer providing credit, then the taxpayer has borrowed money from the credit card provider as per TR 2000/2.

Begs the question, is the mere use of a credit card meaning you have borrowed money from a credit provider (even if positive balance)?

Taxation Ruling TR 2000/2 states:
In the case of a repayment of principal on a line of credit, the borrower acquires a contractual right to borrow a further amount equal to the difference between the reduced drawn-down amount and the available credit limit. That right to borrow further funds is a contractual right under the loan agreement permitting the borrower to draw down funds up to the agreed credit limit. The available credit is not an asset of the borrower and the available credit limit can be varied by the lender upon review.

Is a 'prepayment' what is described as above? Just giving the borrower a right to borrow a further amount that equals the prepayment amount, therefore using credit card with a positive balance is still borrowing? Don't know - could argue either way. I just don't think it is as simple as prepay and it'll be fine - seems too easy!

 

[cove]

Just be careful selecting which credit card to use on paying the ATO as points cut backs have been coming thick and fast.
Citibank stopped paying points in March without any notice and Amex direct accounts are all changing but at different dates based on which card you have.
My Amex Ultimate will not work for me post July 21st as QF points at 2.9 cents is a bad joke.

 

[Jack_OC]

People will do whatever they can get away with

I don't see claiming deductions that are specifically highlighted by ATO on their website as being allowable as getting away with it.

Begs the question, is the mere use of a credit card meaning you have borrowed money from a credit provider (even if positive balance)?

There is no question that credit card fees can be claimed as a deduction under some circumstances - this is made abundantly clear in the the section of the ATO website that I linked to previously (entitled "Credit card payment fee deductibility guidelines"). So the mere use of a credit card definitely does not preclude claiming the fee as a deduction

Taxation Ruling TR 2000/2 states:
In the case of a repayment of principal on a line of credit, the borrower acquires a contractual right to borrow a further amount equal to the difference between the reduced drawn-down amount and the available credit limit. That right to borrow further funds is a contractual right under the loan agreement permitting the borrower to draw down funds up to the agreed credit limit. The available credit is not an asset of the borrower and the available credit limit can be varied by the lender upon review.

Is a 'prepayment' what is described as above? Just giving the borrower a right to borrow a further amount that equals the prepayment amount, therefore using credit card with a positive balance is still borrowing? Don't know - could argue either way. I just don't think it is as simple as prepay and it'll be fine - seems too easy!

There is a very clear and unambiguous distinction between funds available under a line of credit and your own funds. If your account is in credit, you are not borrowing money when you withdraw it. If your account is not in credit, and you go into debt (or further debt) by withdrawing money, then you are borrowing money. That really is a very simple concept.

 

[cj0325]

Also worth noting that the stipulation that you must "not borrow money from your card provider to make the payment" in order for the surcharge to be deductible is only in the context of an income tax liablity.

There is no such restriction for GST, WET, FBT, Luxury Car Tax, PAYG Instalments, Student Loans and presumably any Superannuation Guarantee charges.

 

[DaveB]

Have held some NAB cards as part of my banking that were never used but do earn 1.5ff:$1 to either QF or VA on a direct transfer basis. The 0.5 Visa earn still sits in the drawer.
Hate the Amex charge but bit the bullet doing a test run last month.The $24+K spend delivered 36+K points which included full earn on the fees.
Maybe just a glitch in my account but this card is now awakening from its slumber.

 

[cove]

DaveB that one works pretty well then.
I am wearing out my Amex Ultimates for Qantas points every four days as you can not put these into credit. All ahead stop on July 21st.
If I miss getting the whole lot paid I will use a Westpac Amex Kris Flyer Platinum but I really need Qantas points at the moment.

 

[DaveB]

DaveB that one works pretty well then.
I am wearing out my Amex Ultimates for Qantas points every four days as you can not put these into credit. All ahead stop on July 21st.
If I miss getting the whole lot paid I will use a Westpac Amex Kris Flyer Platinum but I really need Qantas points at the moment.

Those east coast JASA's hitting the account too hard or building up a bank for the EK experience?

 

[cove]

I am chasing a 3 year supply of QF JASAs actually because I casually looked at the cash price for a ticket in J.

 

[DaveB]

Best keep the J price to yourself and not scare the children!!