ATO should be exempt from credit card surcharge, accountant says

“The RBA didn’t think about government departments when they banned credit card surcharges,” McGhee told Accountants Daily.

“All costs in government departments are legislated. But this credit card surcharge ban has only come in recently. That hasn’t been factored into the legislation. The ATO can’t charge the surcharge now.”

While ATO Commissioner of Tax Rob Heferen said around 5 per cent of all small businesses used credit cards to pay their tax obligations in FY2024–25, McGhee argued that the impact could be much more widespread.

“Governments often look at data in isolation, but the raw number or percentage of businesses currently paying by credit card is not an accurate metric of health for the wider economy, nor is it an indicator of what can occur in the future,” she said.

“Liquidity can evaporate rapidly. A historically good business with strong underlying fundamentals can easily turn into a struggling business if it encounters a temporary crunch, loses a key client, faces sudden supply shocks, has staff changes, or there is a temporary business downturn.”

“Tax compliance is ongoing and constant. You’ve got income taxes, business activity statements (BAS), regular taxes that come monthly or quarterly depending on how the business is set up. If your BAS is $50,000 and you’re waiting for your customer to pay their fee and there is a gap between collecting money from your supplier and paying the ATO, how does the business owner fill the gap?

“Businesses don’t have a pot of money at their disposal because they have to pay wages and super on their wages at the same time, so that’s already draining cash flow. Cash flow is more important than ever with all the compliance requirements and deadlines.”

With the Tax Ombudsman reporting a 180 per cent rise in complaints in the past two years as the ATO ramps up its debt collection activity, McGhee said debts could potentially rise further if businesses no longer have the option to fulfil their tax obligations by using credit cards.

The inaugural ATO Sentiment Report by Accountants Daily has revealed that almost nine in 10 accountants think the ATO has become somewhat or significantly more aggressive in its enforcement and compliance approach.  

She also stressed that commercial credit facilities are essential for managing tight working capital cycles and navigating short-term cash flow crunches.

While the ATO credit card ban was to come into effect from December this year, it announced that it would extend this date to 30 June 2027 after the federal government intervened in the matter.

Dangers of using third-party providers flagged

The ATO said taxpayers who wish to continue using a credit card to meet their tax obligations after 30 June 2027 may continue to use third-party payment providers but warned them to remain vigilant against scams and verify the credentials of any third-party providers before sharing information or making payments.

“They understand the risks that they’re going to put on taxpayers, but they’re not willing to collect the tax themselves,” McGhee said.

“If the ATO doesn’t collect the tax itself and the business is late to pay, it will be forced into a systemic cycle of debt because if they choose not to use third-party providers and they miss any deadlines, then they default with the ATO. Then the ATO catches the business in their strict debt collection net.

“What that means is, they get general interest charges and late penalties. To make things worse, the federal government said last year that general interest charges are no longer tax-deductible. So, businesses are forced into this cycle of debts, which they can’t claim as a deduction, which just accrues every day. It does nothing but delay the goal of tax collection.”

Lack of consultation is an issue

McGhee also criticised the lack of consultation by the ATO with the tax and accounting profession before announcing the credit card ban.

“I just feel like the government’s so out of touch with how businesses operate. If they’ve never run a business themselves, then how can they make policies about this?” she asked.

After initially announcing that the ban would come into effect from December this year, the ATO extended its timeframe for accepting credit card payments until July 2027 after the government announced a cash injection to support associated annual costs, which the ATO estimated at almost $200 million and expected to keep rising over time.

Accountants looking at the exit door

McGhee said she has spoken to accountants who are contemplating either resigning or retiring due to the onslaught of changes, including the credit card ban and the government’s proposed tax reforms.

“The whole accounting community is saying they’re done,” she said.

“We can’t keep up with all the changes. We can’t keep up with all the client queries about the changes. We can’t keep having more and more and more because everyone is confused, everyone’s tired, everyone’s overwhelmed. All these changes since budget night have been so unprecedented that everyone is scrambling to try and work out what’s going on.”