How the ATO found itself embroiled in a battle over credit cards that forced a rethink

The ATO planned to ban direct credit card payments for tax bills. The change was connected to Australia’s wider payments reforms, which also banned card surcharges and reduced some transaction fees. The ATO said continuing to accept credit cards would become too expensive after it had to absorb processing costs.

The ATO estimated those costs at about $200 million each year. It explored lower fees with credit card companies, but they did not offer rates low enough to make continued acceptance affordable. Some small businesses use cards to delay payment or earn rewards, so removing the option could create immediate pressure.

Treasurer Jim Chalmers announced extra funding for the ATO to keep accepting the payment method until June 2027. After 30 June 2027, the ATO will still accept credit card payments through third parties, alongside debit cards and bank transfers. The ATO will also consult about hardship support and alternative arrangements.

A card surcharge is an additional amount a business charges when a customer pays by card. It is designed to recover the processing fee charged when the payment travels through a card network. Australia banned surcharges for EFTPOS, Visa and Mastercard payments from 1 October.

Before the ban, a business could add the processing cost to the customer’s bill. After the ban, the business must absorb that cost or reflect it in broader prices. The article says business groups objected because they must accept cards and absorb fees or raise prices, while the ATO could withdraw card payments.

The reforms also cut the rate banks charge businesses for transfers from 0.8 per cent to 0.3 per cent. The ATO said it would have to absorb credit card processing fees, costing about $200 million annually. That cost helped drive its planned ban, later delayed until June 2027.

Credit card payments make up a small share of tax payments. The latest ATO data shows that about 2.3 per cent of tax payments were made with credit cards during the 2024/25 financial year. Most of those payments came from privately owned wealthy groups, and public and multinational businesses.

The small percentage does not mean the option is cheap for the tax office. After surcharges were banned, the ATO said it would need to absorb the processing fees itself. It estimated that continuing to accept credit cards would cost about $200 million annually, unless providers offered substantially lower fees.

The ATO explored options with credit card companies, but their proposed fees were not low enough. Treasurer Jim Chalmers then provided extra funding to keep the option available until June 2027. The ATO will continue offering other payment methods, including debit cards and bank transfers.

Credit cards can give small businesses extra time to meet a tax bill. A business may use the card when the bill is due before enough cash has arrived, helping bridge or extend the payment gap. Cards can also provide rewards, including frequent flyer points, which makes them attractive to some users.

If direct card payments disappear, a business must pay from its available cash or arrange another form of finance. That can bring forward the point when money leaves the business. Business groups warned that the change would pressure small businesses that rely on cards to manage cash flow, particularly when they have limited short-term options.

The government delayed the ban until June 2027 after the backlash. After that date, the ATO will accept credit card payments through third parties, as well as debit cards and bank transfers. The ATO also plans to consult about alternative arrangements for people facing financial hardship.

Business groups objected because the payments reforms placed different expectations on businesses and the tax office. Businesses are expected to accept card payments under the new system. They must absorb the processing cost or raise prices, because card surcharges were banned.

The ATO instead planned to stop accepting credit cards after deciding that absorbing the fees would cost about $200 million each year. Critics said this gave the tax office an easier choice than small businesses receive. They argued that the ATO should meet the same standard and keep accepting cards rather than remove the option.

Groups also complained that the consultation period was rushed. They said businesses had only two months to adapt and raise concerns. The backlash led Treasurer Jim Chalmers to provide funding that delays the ATO ban until June 2027, while the ATO considers longer-term arrangements.

The ATO’s direct credit card option is funded to continue until June 2027. After 30 June 2027, the payment system will change, but taxpayers will not lose every card-based option. The ATO has said it will continue accepting credit card payments through third parties.

Businesses and individuals can also use other free or low-fee methods. The article specifically names debit cards and bank transfers. These methods avoid relying on the ATO’s direct credit card arrangement and are presented as alternatives once the delayed period ends.

The ATO is also consulting relevant stakeholders and stewardship groups. Its stated aim is to support people experiencing financial hardship and identify arrangements for those unable to pay through other methods. The article does not specify which third parties will process future credit card payments or whether their fees will change.

When a customer pays by card, banks and payment networks charge fees connected with processing the transaction. The article says the rate banks charge businesses for transfers from customers to businesses was cut from 0.8 per cent to 0.3 per cent. Card networks must also publish merchant fees so businesses can compare providers.

These fees help explain several changes. Banks had used some transaction income to subsidise frequent flyer and rewards programs. Ahead of the cuts, they began raising annual fees and offering fewer perks. Businesses, meanwhile, could no longer add card surcharges, so they had to absorb costs or raise prices. The ATO faced the same pressure when it could not pass fees to taxpayers.

The ATO said absorbing credit card processing fees would cost about $200 million annually. It explored lower fees with credit card companies, but none were low enough. The result was a planned ban, now delayed until June 2027.