How to ease the pain of your 2019 tax bill with credit card rewards points

How to ease the pain of your 2019 tax bill with credit card rewards points

  • Most rewards credit cards exclude government payments from earning points.
  • We explore the benefits of those cards which buck the trend and let you earn points on your tax payments, an especially important feature for businesses.
  • Take a look at our case study to find out how points can soften the blow of paying taxes.

What is it about payments to the government that has many rewards credit card providers running scared?

It may be the potential size of ATO tax bills, Australia Post delivery service charges or vehicle fleet registration costs (especially for businesses) that causes the points earning tap to be turned off for this kind of purchase: the cardholder would receive a points bonanza for a single, easy transaction, while the government is in a position to negotiate downwards the size of the fee it pays to the card issuer, given the sheer volume of its merchant activity.

Keen readers of small print, or those who regularly scrutinise their credit card statement to check how many points have been earned, will have noticed this quirk in many rewards cards, effectively defining government payments, together with balance transfers, cash advances, interest charges and card fees, as ‘non-purchases’.

However, the news is not all bad. Tax payments, in particular, are an integral part of the economy, and since dealing with them via a credit card offers both a simple process and an opportunity to manage cash flow, it’s worthwhile checking out the relatively limited number of cards which will let you earn rewards points on your tax bill.

The best cards to have in your wallet when paying your tax bill

Pulling card out of wallet

Whether you’re an individual or a business, paying taxes is unavoidable. Fortunately, there are cards earning points on tax payments for both types of users.

Personal credit cards earning points on government payments

There’s no getting away from the fact that American Express cards are the only option if you want to earn points on your tax payment with a personal card. But if you don’t want to be locked in to using just an Amex card – because of lower card acceptance or higher merchant fees – consider applying for a card bundle which gives you both an Amex card and a Mastercard on a single account, such as the American Express Westpac Altitude range.

You’ll also need to decide whether you’re happy to earn Amex Membership Rewards points (which can be exchanged for frequent flyer points or redeemed for retail gift cards, account cashback, travel and shopping at David Jones) or would prefer Qantas or Velocity frequent flyer points, which can have a higher value than Membership Rewards points if redeemed for premium fares or upgrades.

Here are the top personal credit cards offering points on ATO payments:

These two cards get top billing because not only do they earn 0.5 valuable frequent flyer points per dollar of tax payments, they also have a $0 annual fee, which means that you could afford to keep them in your wallet simply for paying tax.

These cards also come in Premium (Qantas) or Platinum (Velocity) options if you’re prepared to pay a higher annual fee in order to access significant complimentary benefits and a higher points earning rate on purchases other than tax payments, but the 0.5 frequent flyer points per dollar for ATO payments will not change.  

Earn 1.0 Membership Rewards Ascent points per ATO dollar spent. Convert points to frequent flyer points with eight airlines (but not Qantas) or redeem as described above. The attached annual travel credit, if you use it, is worth more than the annual fee, and it comes with a range of complimentary benefits, including travel insurance.

For a moderate annual fee (considering the high level of points earned on regular spending and the special benefits when shopping at David Jones) you can choose to earn either 1.0 Membership Rewards points (convertible to eight airlines’ points) or 0.5 Qantas Frequent Flyer points for every dollar spent paying the ATO.

You could also opt for the much more expensive American Express David Jones Platinum Credit Card. You’ll earn more points on non-ATO spending than you would with the standard version of the card, and access complimentary benefits including travel insurance and airport lounge passes, but the points earning rate for ATO spending remains the same.

The high annual fee makes this a rather expensive option for earning 1.0 Membership Rewards Gateway points per ATO dollar spent. However, it’s loaded with complimentary benefits as well as a good points rate for other purchases, and the annual fee is wiped out in any year where you can make use of the annual $400 travel credit.

  • Westpac Altitude Card bundles

The American Express Westpac Altitude Platinum Credit Card Bundle and American Express Westpac Altitude Black Credit Card Bundle are Amex/Mastercard card pairs which allow you to earn 1.0 Altitude points or 0.5 Qantas points per dollar spent with the ATO, using the American Express card only. That is, you won’t get any points if you accidentally pay the ATO with the Mastercard.

Get 50,000 Bonus Membership Rewards Points

Spend conditions apply.
American Express Explorer® Credit Card
5 reviews

Get 50,000 Membership Rewards points when you apply online, are approved and spend $3,000 in the first 3 months.

Receive a $400 Travel Credit each year towards any flights, hotels and car hire when you book online with this card.

Smartphone Screen Insurance for up to $500 for screen repairs when you pay for your phone or contract with this card.

Earn 2 pts per $1 spent on eligible purchases, excluding Government spend where you earn $1 pt per $1 spent.

T&Cs and eligibility criteria apply. Available to new card members only.
Entry into The American Express Lounge is governed by the full Terms and Conditions available at amex.com.au/airportlounge.

This credit card offer is subject to change and may not be directly related to the content of this article.

Business credit cards earning points on government payments

Fortunately, there are more options for businesses who want to earn points when they pay their income, GST and PAYG withholding taxes. Although American Express once again features strongly in the list, businesses are not restricted to paying with Amex cards. This is yet another good reason for small-to-medium business owners to consider applying for a dedicated business credit card, rather than using a personal card for business expenses.

However, not all business credit cards offer rewards points on ATO payments. Here are some of those that do:

Like their personal card counterparts, these cards earn 0.5 frequent flyer points per dollar spent paying the ATO.

  • American Express Business Card range earning Membership Rewards points

All cards in this group earn 1.0 Membership Rewards points on ATO payments. Annual fees vary, depending on the points earning rate for non-government purchases and the attached complimentary benefits. If you don’t see the word ‘credit’ in the card name, it means that it’s a charge card, not a credit card, which may make it slightly more flexible when it comes to paying very large tax bills. 

In order, starting with the least expensive card, they are:

Also consider these non-Amex cards:

This range includes very similar cards issued by two other banks in the St. George group – Bank of Melbourne and BankSA. With all three cards, you can choose between earning 0.5 Amplify points (in the banks’ in-house rewards program) or 0.25 Qantas points, on ATO payments.

These cards are unusual in that they allow 0.5 ANZ Rewards points to be earned on each dollar paid to the ATO, but exclude all other government payments (e.g. Australia Post, local government rates) from points earning.

On ATO payments, both cards earn 0.5 points in Westpac’s Altitude Rewards program. 

This card is linked to the Qantas Frequent Flyer program, and you’ll earn 0.33 QFF points for every ATO dollar spent.

Ways to pay the ATO using your credit card

woman paying for items online using laptop

The ATO offers three ways to pay tax bills with a credit card or charge card:

EasyPay

  • Go to the ‘How to pay’ page on the ATO website.
  • Click on ‘Pay now with the Government EasyPay service’.
  • Once taken to the secure payment website, enter the required information (e.g. your PRN, amount, card details, &c), then follow the prompts to complete the payment.

MyGov

  • Log in to your myGov account.
  • Click the Australian Taxation Office link.
  • Click on the ‘Tax’ column, then select ‘Payments’ followed by ‘Payment’ from the drop-down list.
  • Click the ‘Credit or debit card’ option and follow the prompts.

BPAY

  • Log in to your card's online banking page and look for the BPAY option.
  • Select your credit card account as your payment option if you have more than one type of account with your card issuer. 
  • Enter the payment details, including BPAY Biller code and your PRN.
  • Follow the prompts to complete the payment.

How to maximise points when paying your tax bill

Tax bill, pen and calculator

  • With most cards, payments to the government will earn points at a rate lower than that applicable to other purchases, so make sure you read the card details carefully.
  • Some cards may give points on ATO payments, but not on other government payments. Once again, check the details.
  • Don’t just consider how many points you will earn, but what the relative value of those points is in redemption terms – all rewards programs are not created equal.
  • Does the card have a monthly or annual cap or threshold on points earning? A big payment to the ATO could exceed the cap or threshold.
  • Use tax payments to help you meet a bonus points spending target on a new card. But check first whether ATO payments count towards the target. (In most cases they will, but it pays to make certain.)
  • Got a really huge tax bill? If you already have an ‘ATO points’ rewards card, use it to make your tax payment before applying for a zero-interest balance transfer to a new card, thus earning points and getting interest-free time to pay.

Important points to be aware of before you decide to pay the ATO with a credit card

  • The ATO imposes a variety of surcharges on credit card payments: 1.45% for Amex, 0.78% for Visa and 0.70% for Mastercard. So make sure the value of the points you earn exceeds the cost of the surcharge. This will depend on how you use the points for redemption. (See Luke’s case study below.)
  • Different payment methods require varying time spans before the payment appears in your ATO account. The ATO warns that it may take up to four business days for electronic payments to be processed. You may need to pay a few days early to accommodate this.
  • Some card issuers exclude BPAY payments from points earning. So even though you may use a credit card to pay the ATO via BPAY, you may not earn points. (Read the small print.) 
  • Try to time your ATO payment to occur at the beginning of your card’s billing cycle if possible, to maximise interest-free days.
  • Don’t pay tax with your card just to earn rewards points if you can’t afford to repay the balance at the end of the month. The interest cost will far outweigh the value of the rewards points. Find a lower-interest way to finance your tax bill.

What you need to know if you’re running a business

Owning and working in a cafe

  • Your card provider may have a limit on using personal cards for business transactions. So read the card Terms & Conditions or check with your card issuer, and seriously consider getting a business credit card.
  • Again, if using a personal card, you’re more likely to run into a points cap or threshold when making ATO payments for a business.
  • Having a business rewards credit card means that the ATO surcharge for credit card payments is a business expense and therefore, like the annual fee, tax deductible.

How Luke worked out whether it was worth using his credit card to pay the ATO

Graphic designer working

Say hello to Luke, a self-employed graphic designer who works as an independent contractor with four main clients. He is registered for GST, and needs to remit about $4,500 each quarter to the ATO, for GST he has collected.

Luke has a personal credit card which gives him Velocity points on his purchases, but the card excludes government payments from points earning. He decides to investigate business credit card options so that he can earn points on his GST payments and also access the other benefits of a business credit card, including keeping business and personal expenses separate and tax deductibility of fees.

He’s aware that he’ll pay a higher surcharge, but he likes the fact that he could earn 0.5 Velocity points per dollar using the American Express Velocity Business Card. As a savvy points collector, Luke has no plans to exchange his Velocity points for merchandise or gift cards, because he knows that the maximum value he’s likely to get is about 0.6 cents per point, which wouldn’t even cover the credit card payment surcharge.

Instead, Luke is busily collecting points to pay for honeymoon Business Class flights to Hawaii for himself and his wife-to-be. He knows that he will need 139,000 Velocity points for each fare, which would normally cost him $5,761 (net of taxes and airline surcharges). So Luke values each of his Velocity points at 4.1 cents ($5,761/139,000).

Luke’s marginal income tax rate is 37%. This is his calculation: 

Pay ATO $18,000 p.a. In GST
Surcharge @ 1.45% = $261.00
Less tax deduction @ 37% = $96.00
Net cost of surcharge = $165.00

$18,000 payment earns 9,000 Velocity points @ 4.1 cents per point = $369

Luke will pay a $249 annual fee ($157 after tax) for the American Express Velocity Business Card. But he thinks that the value of the attached complimentary travel insurance and Virgin lounge passes is far in excess of $157, so he’s not going to include the card’s annual fee in his costing.

He works out that he will be $204 ahead every year by paying his GST bill with his chosen credit card. And he’s also going to earn more points by paying his personal income tax instalments with his business credit card, correctly recording them in his accounts as the owner’s withdrawal of funds from the business, thus preserving the tax deductibility of the annual fee of a card used exclusively for business.

Luke is unlikely to earn enough points annually to attract any adverse attention from the ATO, but if this possibility concerns him he could use his points to get Business Class upgrades on his business flights instead.

So, is it worth paying the ATO with a rewards credit card? If you choose the right card for your circumstances, and redeem your points in a way that delivers the best value, the answer is a definite ‘Yes!’

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