From December 1, Australians will no longer be able to pay their tax bills directly to the Australian Taxation Office (ATO) using credit cards.
It appears to be a classic case of unintended consequences. New rules – which came into force at the start of this month – prohibit businesses from using surcharges to pass on card payment fees. But the costs of accepting card payments haven’t vanished, and someone has to foot the bill.
That’s a unique problem for the tax office. A restaurant might be able to recover these costs by increasing its menu prices overall. But the tax office can’t force everyone to pay a little more tax to cover the cost of some people paying by credit card.
Rather than absorb the cost of processing credit cards, estimated at almost A$200 million annually, the ATO has decided to stop accepting them altogether.
Business groups have strongly opposed the decision, arguing it could worsen financial pressures on smaller businesses.
The backlash has put the federal government under pressure to intervene, and Labor has now reportedly asked the ATO to conduct further consultation with small businesses to “make sure that flexibility is provided”.
Card surcharges are banned from October 1. What’s changing at the checkout?
Who actually uses credit cards to pay tax?
The ATO says credit card payments were used for 2.3% of all tax payments collected in 2024–25. Within this figure, more than 60% of credit card payments by value came from wealthy private groups, public companies and multinationals.
There’s an important distinction to make here. On its own, payment value does not tell us how many businesses rely on credit cards. Nor does it tell us whether they use them because of financial difficulty.
According to the ATO, about 5% of small businesses used credit cards to pay their tax bills in 2024–25, and just over 2% of individual taxpayers.
Why pay tax with a credit card?
Businesses may use credit cards to pay tax bills for a range of reasons.
Some may be bridging a genuine temporary cash shortfall, perhaps using the interest-free days on a card as a form of cheap, short-term financing.
Consider a small business such as a landscaping company awaiting payment from customers while its quarterly tax obligations are due. A credit card can provide breathing space until those invoices are paid.
Such short-term cashflow problems don’t necessarily mean the business is unprofitable or financially mismanaged.
For others, it might be more a matter of convenience than necessity. Or a general way to take advantage of reward points or interest-free periods.
Are small businesses feeling the squeeze financially?
There is evidence some small businesses are facing increasing financial pressure.
A June report from the Australian National Audit Office found small businesses owed $35.9 billion in collectable tax debt in 2024–25, an increase of $19.4 billion since 2018–19.
Meanwhile, Financial Counselling Australia reported a 21% increase in cases handled by its small business debt helpline during 2025. Almost two-thirds involved ATO debt.
The Reserve Bank of Australia’s Financial Stability Review last week also identifies growing cashflow pressures as a concern for smaller businesses – especially in construction, hospitality and retail.
Higher interest rates, operating costs and delayed customer payments can place considerable strain on businesses with limited financial reserves.
On Thursday, the Housing Industry Association, the peak national body for residential construction, called on the federal government and ATO to reverse its credit card ban, saying it would worsen existing pressures faced by home builders.
Darren England/AAP
However, the RBA also finds most businesses remain financially resilient. The evidence points to concentrated financial pressures, rather than an economy-wide, small-business crisis.
Rearranging the financial deckchairs
The ATO ban on credit card payments could have further unintended consequences of its own.
Consider a business with a $10,000 tax liability, but insufficient cash available to meet its tax obligations. Paying by credit card extinguishes its ATO debt, effectively transferring the liability to its bank.
But removing this option doesn’t create the missing $10,000. If a business can’t pay it, that debt sits with the ATO.
For the tax office, this raises the possibility that savings on credit card processing costs could be partly offset by increased unpaid tax debt and collection expenses.
The counterargument is that some of these businesses may have been likely to go into debt anyway. Repeatedly financing tax obligations through expensive credit cards may conceal underlying financial problems rather than resolve them.
What alternatives remain available?
Those experiencing difficulties may be eligible for ATO payment plans, which allow debts to be repaid through instalments.
However, general interest charges continue accruing, and ATO interest incurred from July 1 2025 is no longer tax deductible.
Other possibilities include bank overdrafts, business loans and some third-party payment platforms that accept credit cards and pay the ATO on a business’ behalf, generally for a fee.
Don’t forget, the ban only impacts credit cards. Businesses can still use debit cards, BPAY, bank transfers and direct debit to pay tax – if they have the money in the bank, of course.
Where to from here?
The ATO’s decision is financially defensible, but its consequences for vulnerable small businesses shouldn’t be overlooked.
Businesses relying on credit cards should review their upcoming tax obligations, assess their financing options and contact the ATO early if payment difficulties are anticipated.
Ultimately, the issue isn’t whether the taxpayer should pay their obligations. They should.
It’s whether removing a payment option makes collection fairer and more efficient or simply makes an already difficult situation worse for those least able to manage it.
