Is it worth paying taxes with a credit card to earn points?
When you factor in lower earn rates and surcharges, using a credit card to pay your tax could end up costing more than any rewards on offer.
There are a handful of personal credit cards and many business credit cards that offer points per $1 spent on payments to the Australian Taxation Office (ATO). But using a credit card to pay the ATO also attracts a fee worth 0.54% of the transaction for Mastercard and Visa and 1.45% for American Express.
As well, many personal credit cards that allow you to earn points on your ATO bills apply a reduced earn rate for this type of transaction – usually around 0.5 points per $1 spent. So, is it actually worth using your credit card to get points for ATO payments?
The answer to this question largely depends on the credit card you use to make the payment, with three key factors to consider:
- The earn rate for ATO payments/government charges. In most cases, you earn a reduced rate compared to regular “eligible purchases” for this type of payment. A notable exception is the Coles Rewards Mastercard, which offers 2 flybuys per $1 spent as long as the payment is made through the ATO’s EasyPay service and not BPAY.
- The amount owed to the ATO. This will determine the total points that you’ll earn and the surcharge you’ll have to pay.
- The type of card. If you’re paying with an Amex card (even one issued by a bank), you’ll pay an extra 1.45% on the total transaction amount. If you’re using a Mastercard or Visa, the fee is 0.54% of the total transaction amount. That’s a difference of 0.91%, or about $0.91 for every $100 you pay to the ATO.
Assuming you have a credit card that earns points for ATO payments, here are a couple of examples of the earnings and costs based on the type of card.
American Express card payments to the ATO
The majority of credit cards that earn points for ATO payments are American Express options. This means they also attract the highest surcharge.
As an example, say you were using the Qantas American Express Discovery to pay a tax debt of $4,000. This card earns 0.5 Qantas Points per $1 spent on government charges (including ATO payments), giving you 2,000 points for your payment.
But you’d also pay a surcharge of $58 for the transaction. In terms of point value, there are currently no flights, upgrades or items on the Qantas Store that you can get with 2,000 points.
As a guide, this is just over 50% of the points required for a $25 Jetstar flight voucher (3,970 points on the Qantas Store), and gives you an equivalent dollar value of $13.42. When weighed up against the surcharge, that leaves you out of pocket by $44.58.
Side note: While that’s a significant surcharge compared to the earn rate, it is worth noting that it costs $77 to buy 2,000 Qantas Points for a redemption. So depending on your frequent flyer goals, this could be a useful way to earn more points.
Mastercard or Visa credit card payments to the ATO
While there are fewer Mastercard and Visa cards that earn points for ATO payments, some of the options that do offer competitive earn rates. For example, the CommBank Business Awards Mastercard offers 1 point per $1 spent. After 1 July 2017, this rate will be better than the earn rate on the Business Awards American Express card (which is currently 1.5 points per $1 but reducing to 0.5 points per $1 after that date).
If you paid a $4,000 tax debt on this Mastercard, you’d earn 4,000 Award points and pay a fee of $21.60. Using a gift card comparison again, this is around 74% of the points needed for a $25 voucher (valued at 5,400 points in the current CommBank Awards catalogue).
So the dollar value of your rewards is $18.50 in this scenario, or $3.10 less than the surcharge. While that’s a minimal cost compared to the Amex scenario, you’re still spending more on the surcharge compared to what you earn in rewards.
For some people, earning any points for a tax debt may be appealing. For others, it might be more cost-effective to make a payment that doesn’t attract a surcharge, such as via your MyGov account or BPAY.
Just keep in mind that BPAY payments made with a credit card usually count as cash advance transactions that are not eligible for points and attract other fees. If you’re on the market for a new credit card that earns points for government payments, make sure you also consider the card’s annual fee, regular earn rate and other features so that you can find one that’s right for you.
DISCLAIMER: This article is general advice. It does not consider your own personal circumstances and may not be applicable to you. You should obtain professional advice and consider your own situation before acting on anything contained in our article.