Many small business owners find themselves, for a variety of reasons, using their personal credit card to cover business expenses. But is that the right call? Whilst it may be easier and more cost effective to use a personal credit card for business expenses when you’re setting up, the accounting difficulties in the long term will probably make a small business credit card desirable.
|Personal Credit Card||Business Credit Card|
|Lower fees than business credit cards||Simple to track and account for business expenses with monthly and online statements|
|Often have lower interest rates than corporate credit cards||Avoid the danger of damaging your personal credit rating (if payments are missed or limits exceeded)|
|Can carry a single card||Easy to provide proof of business expenses to the ATO|
|Enables you to maximise your reward points|
Paying Tax by Credit Card
Many business owners are not aware that, since 2011, the Australian Taxation Office introduced a facility for businesses (and individuals) to pay their outstanding BAS and Income Tax debts using their credit card.
The ATO will accept payments of between $10 and $50,000. A card payment fee of 0.42% (VISA/Mastercard) or 1.45% (American Express) applies to transactions made using this service. (The fee is not subject to GST, and is equal to the fee the ATO incurs from its bank.)
Tax FBT Issues
A lot of business and personal credit cards offer reward points and other types of consumer loyalty programs (such as frequent flyers).
The courts have held and the ATO accepts that in most circumstances the rewards received under a consumer loyalty program are not taxable.
However, the ATO is mindful of businesses who try to integrate a loyalty progam into any of their employees’ remuneration packages.
Rewards may create a tax liability where:
- the reward is received as part of an income earning activity, there is a business relationship between you/your business and the reward provider, and a business is being carried on or the benefit is convertible directly or indirectly to a monetary value; or
“Pamela is a sole trader operating a painting and wallpapering business, and she buys her paint from a paint wholesaler. The wholesaler has a loyalty program that entitles her to points which can be redeemed for shopping vouchers. There is a business relationship between Pamela and the paint wholesaler and it is this relationship that makes Pamela eligible to receive possible benefits.Pamela redeems her points for vouchers worth $2,500. Pamela uses the vouchers to acquire clothing for herself and her children.The redemption of points in return for the vouchers valued at $2,500 was as a result of business purchases of paint. The value of vouchers, $2,500, is assessable under section 21A of the ITAA 1936 as the benefit flows from the business relationship Pamela has with the paint supplier. The vouchers are assessable income at the time of receipt. Pamela is required to return $2,500 in her assessable income.
- an employee receives a reward that is provided in such a way that their is a sufficient and material connection between the reward and his or her employment
John is an employee of XYZ Company. John uses his personal credit card for private expenditure. Under an arrangement (which can be explicit or tacit) between John’s employer and John, John is able to place all of the business expenditure of the company on his personal credit card. The company reimburses him for the expenditure he has paid on its behalf. Under the arrangement John’s points entitlement from the business expenditure is significant and exceeds 250,000 points per annum.
FBT may apply in this case. Any reward that arises from the redemption of the points has accrued in respect of significant business expenditure. The reward may have been provided under an arrangement, and may be in respect of employment.
GST and Reward Points
Are there any GST implications when you receive and/or redeem points under a credit card reward scheme for a reward?
The short answer is No, any goods or services purchased through redeeming of reward points are not considered a taxable supply.