ATO credit card ban delay could lead to higher usage

In a statement on Friday (9 October), Treasurer Jim Chalmers said that, after this date, the ATO will continue accepting credit card payments via third parties and other free and low-fee payment methods like debit card and bank transfer.

“The government will provide transitional funding so the ATO can continue accepting credit card transactions until the end of the financial year, with costs to be finalised in MYEFO [Mid-Year Economic and Fiscal Outlook],” Chalmers said.

“This will provide more time for the ATO to engage with small business and other taxpayers who currently rely on credit cards, provide more detailed information to those affected, and consult on targeted options to support impacted taxpayers.”

While welcoming the longer transitional period, the Institute of Public Accountants’ (IPA) senior tax adviser Tony Greco warned that this could encourage more taxpayers to use credit cards to make their payments and fulfil their tax obligations and lead to a cost blowout.

ATO Commissioner of Tax Rob Heferen said, after ATO’s original announcement, that merchant fees are estimated to be almost $200 million annually and expected to continue increasing over time. He added that it was not tenable for the ATO to absorb the costs associated with accepting credit cards on an ongoing basis, as this would result in less revenue being collected by the ATO.

Will more taxpayers use credit cards?

Greco told Accountants Daily that taxpayers could find that using credit cards to make their payments could be an attractive option if the ATO is not going to impose a surcharge during the transitional period.

“More people will want to use the credit card until July 2027 when the ban comes into effect if the ATO doesn’t make them pay the surcharge. As a result, the costs could go up for the ATO or the community. The question I’d ask is could this extension create a behavioural change?” Greco said.

“I’ll put a caveat around that and say you might see increased usage of credit cards if the ATO doesn’t attach any conditions to the extension. We need to understand what the ATO might do to counter that. Are they going to put in place some restrictions given the extension of the ban?”

Heferen said around 5 per cent of all small businesses used credit cards to pay their tax obligations in 2024–25, while just over 2 per cent of taxpayers used the facility to pay their tax.

No excuse for defaults now

Greco expressed concern around the constrained two-month transition period initially provided to taxpayers.

The ATO had previously said credit card payments after 30 November 2026 will be unsuccessful and the status of the taxpayer’s payment plan could move into arrears or default.

Greco had warned that many taxpayers would be caught unaware of the change and, as such, default on their tax payment.

However, the extension announced by the government now gives taxpayers around eight months to transition to other payment methods. As such, Greco said “there’s no excuse” for taxpayers to default on their payments.

“The ATO could go a little bit harder with taxpayers who don’t change their payment plans,” Greco said.

“There’s ample time to remind people that this is no longer going to be acceptable come 1 July 2027. It changes the whole equation. It gives advisers eight months to tell current users to gravitate, and the ATO can go harder if people choose to ignore that.”

The ATO said taxpayers must transition to another payment method before this date, including debit card, BPAY®, and direct deposit. Payments can also be made through Australia Post and international money remitters.

Greco said the ATO has the right to recover debt from a taxpayer who has defaulted on their payments by various methods.

“They can enforce direct penalty notices or they can send garnishee notices to garnish your bank account but these are some of the more extreme methods,” he said.

A garnishee notice requires a third party or someone who owes money to the taxpayer to pay the required money to the ATO instead of the taxpayer, according to the ATO.

Some businesses complete their business activity statement (BAS) and meet their tax obligations by using a credit card. They could be collecting PAYG from wages or paying PAYG on future tax bills, Greco said.

“They now have to find an alternative source of funding for that obligation,” Greco said.

“You’ve also got people who are already behind on their obligations. They’ve entered into payment plans, which are linked into credit cards. They’ll also need to change their payment plans. Payment arrangements are personalised for the taxpayer. It’s like an agreement between the taxpayer and the ATO.

“The Tax Office won’t chase that debt down so long as that taxpayer adheres to those payment arrangements. The minute you break them, then the gloves are off. They seek the repayment of that debt.”

Accountants Daily approached the ATO with questions around how it would treat taxpayers if they default on their payments, but it declined to comment.

Decisions loom for small businesses

The IPA has provided its members with a fact sheet that explains the changes, which accountants can provide to their clients, Greco said.

He added that accountants can help small-business clients make several decisions as they manage the impacts of no longer being able to include the credit card surcharge in their costs.

“Can their customers absorb the price increase? Not everyone can pass on costs in this environment. Some will decide not to. Others will decide that their customers can afford to pay it,” Greco said.

“The first thing is for businesses to update their systems and stop charging the surcharge because they’re not allowed to do that anymore.”

The ATO said taxpayers who want to continue using a credit card to meet their tax obligations after 30 June 2027 may do so using third-party payment providers.

“The ATO encourages taxpayers considering these options to carefully consider relevant fees, charges and processing time frames,” it said.

“The ATO also encourages taxpayers to remain vigilant against scams and verify the credentials of any third-party providers before sharing information or making payments.”

It added that it will consult with relevant stakeholders and stewardship groups to understand how to support businesses and individuals experiencing hardship and identify alternative arrangements for those who are unable to pay via other methods.