When it comes to using your credit card for purchases in Australia, understanding the implications of GST on credit card fees is crucial. In this comprehensive Legal Kitz article, we delve into the intricacies of GST on credit card fees, exploring how this taxation applies to credit card surcharges based on the GST treatment of the underlying supply. By examining the implications, rates, and considerations for both consumers and merchants, we aim to provide the necessary knowledge for informed transactions in the realm of credit card fees and GST.
GST on Credit Card Fees
GST on credit card fees is a crucial aspect to consider when making a purchase with your credit card in Australia. The reason behind this is that GST, a tax applied to most goods and services sold in Australia, includes credit card surcharges.
The application of GST on credit card surcharges depends on the GST treatment of the underlying supply. If the underlying supply is GST-free, then the credit card surcharge will also be exempt from GST. Conversely, if the underlying supply is taxable, the credit card surcharge will be subject to GST.
To illustrate, let’s say you purchase a taxable item from a merchant who levies a 3% credit card surcharge. In this case, both the price of the item and the credit card surcharge will attract GST. The GST on the item’s price will be calculated at the standard rate of 10%, while the GST on the credit card surcharge will be calculated at a rate of 0.3%.
It’s worth noting that not all merchants impose credit card surcharges. Some merchants choose to absorb the cost of credit card processing fees, while others pass the cost on to customers. If you’re uncertain whether a merchant applies a credit card surcharge, it’s advisable to inquire with them before making a purchase.
Learn more about GST on Credit Card Fees.
GST on credit card fees (annual) and processing Fees
When it comes to GST on credit card fees in Australia, the application of taxes depends on whether it is an annual fee or a processing fee. GST is not applicable to credit card annual fees in Australia. This is because annual fees are not considered to be a supply of goods or services. Instead, they are considered to be a charge for the right to use the credit card.
However, if a credit card issuer charges a separate fee for processing credit card transactions, then that fee may be subject to GST. This is because the processing fee is considered to be a supply of services.
It is important to note that not all credit card issuers charge annual fees. Some issuers choose to waive the annual fee for certain types of cards, such as low-interest cards or cards that offer rewards.
If you are unsure whether a credit card issuer charges an annual fee, you can check the terms and conditions of the card. You can also contact the issuer directly to inquire.
Two main types of credit card surcharges in Australia
If you’re a merchant in Australia, you may be considering charging a credit card surcharge. This is a fee that you can charge customers who pay with credit cards. Surcharges can help to offset the costs of accepting credit cards, such as merchant fees.
There are two main types of credit card surcharges in Australia:
Flat fee surcharge
This is a fixed fee that you charge for each credit card transaction. For example, you might charge a flat fee of $0.50 per transaction.
Percentage surcharge
This is a percentage of the purchase price that you charge for each credit card transaction. For example, you might charge a percentage surcharge of 2%.
Which type of surcharge you choose will depend on your individual business and the costs you incur for accepting credit cards. If you have a high volume of low-value transactions, a flat fee surcharge may be a better option. If you have a lower volume of higher-value transactions, a percentage surcharge may be a better option.
It’s important to note that there are some restrictions on how much you can charge for credit card surcharges in Australia. The Australian Competition and Consumer Commission (ACCC) has set guidelines on what is considered to be a reasonable surcharge. If you charge more than the ACCC’s guidelines, you could be fined.
Learn more here.
Understanding the implications of GST on credit card fees is crucial for both consumers and merchants in Australia. By considering whether the fees are subject to GST, individuals can make informed decisions while making purchases, while merchants can ensure compliance with taxation regulations and guidelines.
Legal advice
If you have any concerns GST on credit card fees, you can always contact Legal Kitz to assist you. To request a FREE 30-minute consultation with one of our highly experienced team members, contact us at [email protected] or 1300 988 954. You can also check out our sister company – Business Kitz’s Subscriptions, to access our full range of legal, commercial and employment document templates to begin your business with a solid foundation that ensures compliance.