$47k ATO Tax Debt - Credit Card Points or Pay Upfront?

L[Deactivated] on 28/07/2020 - 10:00
Last edited 28/07/2020 - 10:43

Hi everyone,

I have a $47 000 tax debt. I do have savings to pay it off however I was wondering if i'd be losing out on points.

My main reason for wanting to accrue points is to use them for future flights. I am hoping to save the points to upgrade all of my flights to business class for a Eurotrip in a few years when covid allows us to travel again.

What would your advice be?

I have my own business so I can tax deduct the credit card fees - taking 30% off the actual fees. Eg. if the fees are $1000 then i would get 300 back as it is a business expense - making it $700.

The credit card surcharge with amex is 1.45% - making the fees $476 after tax deductions etc.

I have a friend who has the St George credit card and has used it to pay taxes for 4 years now. He used it to fund a round the world trip in business class.

Help! what is the smartest way to do this?

From the ATO website:

American Express

1.45%

MasterCard – International

2.20%

MasterCard – Domestic Debit

0.18%

MasterCard – Domestic Credit

0.73%

Visa – International

2.20%

Visa – Domestic Debit

0.38%

Visa – Domestic Credit

0.78%

Financial

closed Comments

  • Nutrino on 28/07/2020 - 10:04
    +14

    If you owe $47k in debt, you must earn a pretty penny.

    • [Deactivated] on 28/07/2020 - 10:05
      +62

      Doesn't stop me from trying to make the most of it =p

      • AustriaBargain on 28/07/2020 - 12:14
        +25

        Hire me to send you funny memes each morning. It won't help your tax problem, but it might brighten your day. My rates for daily memes start from 47k per year.

    • DanielR on 31/07/2020 - 13:42
      +2

      I would put it on a payment plan with the ATO, as any future interest charges can be used as a tax offset for future income. Probably would work out better than points.

      • 4agte on 31/07/2020 - 20:58
        +1

        If they can PIF he is not entitled to a payment plan. The ATO is not a financial institution. You will be charged GIC 7.89%.

    • [Deactivated] on 31/07/2020 - 21:27

      you could get 47 R5-3500X | RTX 2060 6GB Gaming PC if luke from techfast will do combine shipping for that kind of money! Seriously tho, imagine explaining tax to a fifteen year old

      • Ironic fear on 01/08/2020 - 17:17

        For every dollar you make, the government takes some of that dollar to pay for the roads and the street lights and the politicians cars and their holidays and their support of Clive Palmer's court bid to make WA open their border

  • dasher86 on 28/07/2020 - 10:14
    +1

    How many points do you get per $.
    Is there a cap on points earn for the period / transaction?
    How much are those points worth on the market / equivalent flight redemption.

    Are fees lower than the above?

  • mapax on 28/07/2020 - 10:17
    +103

    Uhh, don’t you just pay in iTunes gift cards…

    • Slurped on 29/07/2020 - 19:27
      +3

      I just paid in Google Play cards

    • lilchonk on 29/07/2020 - 21:59
      +3

      Umm no, i'm pretty sure you pay it in Fornite V-Bucks.

  • k-rokfm on 28/07/2020 - 10:23
    +34

    I have always thought that payments to government organisations (eg. ATO) have been excluded by most card companies as 'ineligible' for points

    snippet from my own credit card:

    Eligible Transaction means any purchase excluding (but not limited to) … government related transactions. Government related transactions include transactions with government or semi government entities, or relating to services provided by or in connection with government (for example but not limited to … payments to the Australian Taxation Office)

    • [Deactivated] on 28/07/2020 - 10:43

      which credit card do you have?

      • swimmingtoad on 28/07/2020 - 10:48
        +6

        Nearly all cards in Au exclude ATO payments from earning points.
        There are a few legitimate companies that act as a middle person, i.e. you pay through their merchant services earn points and they forward the payment to the ATO. Obviously for a small fee.

        • [Deactivated] on 28/07/2020 - 10:55
          -5

          I think you cant pay council bills etc but St George definitelly allows you to use their credit card for ato/taxes.

        • Kkuba on 29/07/2020 - 15:45
          +1

          One way I was reading to get around this is to use AfterPay or one of those. As I believe you can pay your tax bill with those, but only up to 1000 per contract, so you would have to set it up 47 times in the case of OP, and I think you can use a credit card to make your AfterPay payments.

          Might be more fees involved, but worth considering.

          • realfancyman on 30/07/2020 - 00:59

            @Kkuba: This is zip but rest is correct

          • Lord Fart Bucket on 30/07/2020 - 13:27

            @Kkuba:

            I think you can use a credit card to make your AfterPay payments.

            Can i then pay my credit card with AfterPay?

            • Kkuba on 31/07/2020 - 13:00

              @Lord Fart Bucket: I haven't tried it myself, I was only reason it on another forum, and the implication was that yes, you can. And I think realfancyman is right, it might have been Zip.

        • kdh on 01/08/2020 - 06:28

          Only the AMEX ones still allow for payments to ATO to go towards points. I would however only use it to pay the minimum you need to get the sign up bonus for a new card(150K bonus points for $3K spent on the Qantas Business Rewards Card = $43.5 ATO charge (1.45%) + $450 AMEX annual fee)

  • 87percent on 28/07/2020 - 10:45
    +2

    you can pay it off in installments, thats what i did when i got hit with a big payment from selling stupid shares

    • Kangal on 29/07/2020 - 18:57
      +1

      Is there really a "Stupid" company selling it's shares?

      • ShortyX on 29/07/2020 - 23:26

        What would their marketing line be?

        • Cyphar on 30/07/2020 - 10:15
          +7

          "Invest in us, we're stupid!"

    • lunchbox99 on 30/07/2020 - 10:24
      +4

      So you made a capital gain but didn't account for the fact that there is tax on it? I mean the fact that you paid tax means you still made a net gain.

      • trapper on 30/07/2020 - 12:04
        +1

        People sell and make a profit, but then they re-buy something else (or even the same thing) later. Now they have no cash left for the tax bill.

      • [Deactivated] on 30/07/2020 - 16:22

        its not a capital gain. just regular tax

  • kerfuffle on 28/07/2020 - 10:48
    +1

    I thought the Amex surcharge was 2.45%. Or is it 1% less for businesses?

    • Baysew on 28/07/2020 - 11:03

      Amex charges would vary for each business, but generally they have reduced fees.

  • theoracle30 on 28/07/2020 - 10:57
    +5

    There are some cards that can earn points with the ATO

    https://www.pointhacks.com.au/ato-points-earning-cards

    American Express charge is 1.45%. If you can tax-deduct the expense, then it could be worth it! However with the current earn and redemption rates, your $47,000 tax debt would probably earn you around 23,000 to 31,000 actual frequent flyer points depending on the card and program. Not quite enough for a long business class flight.

    • dust on 29/07/2020 - 09:07

      What's a long business class flight? 😓

      • theoracle30 on 29/07/2020 - 09:59
        +1

        A 4-5 hr Sydney to Perth Business Class flight would cost 35,500 Velocity Points or 41,500 Qantas Points, for a reference.

        So the points earned from a $47k tax debt probably wouldn't be enough for even a 4-5 hr length flight yet.

        • [Deactivated] on 29/07/2020 - 18:16
          +1

          Made up my mind to not pursue points. Thankyou!

  • tsunamisurfer on 28/07/2020 - 10:58

    I've always been intrigued by this but never really looked into it deeper as the fees erode the points benefits.

    However I remember someone suggesting previously that one could buy a post office 'card' (maybe a prepaid debit card of some sort), then use that to pay the debts. Not sure if this still works.

    • [Deactivated] on 28/07/2020 - 11:08
      +3

      I've just looked into it. The australia post prepaid card allows $500 max to be loaded onto the card and incurs a $5.95 fee for the card itself. it is not reloadable. I will need 94 cards to pay 47k…

  • resmansg on 28/07/2020 - 11:27
    +5

    I think the best option could be to sign up for a new Visa or MC as their fees are lower, for example, the NAB Qantas Business Signature Visa card. By paying all your debt within 60 days of account opening, you got an extra 100,000 Qantas points (plus the usual 0.66 Qantas points per $1 used). Since this is a business card, you sure can deduct tax for the fees.
    NAB accepts ATO payments for points as other transactions (stated explicitly on their website).

    • pln on 28/07/2020 - 16:21
      -1

      Have you got the link to where it's explicitly stated?
      Having a look at https://www.nab.com.au/content/dam/nabrwd/documents/terms-an… says they won't

      • resmansg on 28/07/2020 - 18:13
        +1

        Check here mate, it was highlighted in bigger and bold text right on the card page:
        "EARN POINTS ON ATO PAYMENTS
        Payments you make to the Australian Taxation Office will earn you Qantas Points at the same rate as regular everyday business purchases"

        https://www.nab.com.au/business/business-cards/nab-qantas-bu…

        • chriskq on 29/07/2020 - 15:46
          +2

          i read your reply as check mate…. which in hindsight would have been better :p

        • pln on 30/07/2020 - 02:50
          -1

          Thanks mate! You're right, after re-read t&c's above also says not accepted…apart from ATO

  • electriccurio on 28/07/2020 - 11:27
    +1

    There are a couple of options here. Use the St George Amplify signature card (personally used it to pay ATO and got max points from the card) or use a 'middle man' service like rewardpay or b2bpay if you are using AMEX. The middle man service is only worth it if you can deduct the expense (which you said you can) and on a high earning AMEX card like Platinum Charge, Centurion or Explorer AMEX card.

  • foxmulder on 28/07/2020 - 11:47
    +1

    …when covid allows us to travel again. :)

    Personally if there is surcharge then it won't worth it. Even with deduction you or the business still pay roughly70% of it

    • netjock on 28/07/2020 - 12:55
      +2

      You are right.

      1.45% surcharge on Amex. Points are worth about 1c each rule of thumb. You are actually losing out.

      Unless it is not your business paying the surcharge.

      • [Deactivated] on 29/07/2020 - 08:24

        Thank you for being helpful =]

      • duchy on 30/07/2020 - 14:50

        This is the response I would have written if I wasn't too late to the party. :) Absolutely correct. Pay via other means.

      • TheMindsetTraveller on 31/07/2020 - 09:12

        The surcharge is tax deductible if it helps ;)

        • netjock on 31/07/2020 - 09:56

          Of course it helps when every $1 of surcharge you paid you won't have to pay tax of 45c.

          55c paid to credit card companies for the pleasure of 1pt that is worth 1c.

          I'd rather keep my 55c thanks.

          • TheMindsetTraveller on 31/07/2020 - 10:22

            @netjock: However I calculated it different to you

            Using your 1.45% surcharge; at 55% to the credit card company that is only 0.80% surcharge.

            Thefore even at 1c per point, one is 0.2c per point better off.

            If one values points more than 1c each, like I do, then it may work out.

            • netjock on 31/07/2020 - 12:01
              +1

              @TheMindsetTraveller: Hahahahaha

              The OP is self employed. Therefore they pay 1.45c surcharge, they won't have to pay 0.65c of tax and they pay 0.8c to the credit card company.

              From cash flow you still have to pay out 1.45c in total for the 1c worth of points that carry the risk of the airline going under / devaluation. I don't think 0.2c is worth that risk. You know how insolvency works right? Basically you have a 1.45c liability of which you only have 1c to pay.

              You could pretty much say OP is insolvent and now we tell them to pay with a credit card. If you can't pay your card off then the savings quickly get eroded. Qantas points are only of value if you can use them, at the moment not so much. A lot of people with mortgage stress probably have a lot of Qantas points but banks won't take them 1c per point to pay off your mortgage would they?

              I got a margin loan that is equivalent to cash flow from dividends so I get my franking credits which even at top marginal tax rate means additional 15c. You'd be better off taking the money and investing in shares than paying it to the credit card company / ATO. There is many / complex ways to save money but the simple rule is not to pay hard cash out for value that is uncertain.

              I understand what you are saying about Qantas points values but then is it accessible value right now? Is it cash? I doubt that is even a decent market selling it as nobody can really use the points. Qantas points value

              • TheMindsetTraveller on 01/08/2020 - 07:34

                @netjock: Firstly, your opinion that the "OP is insolvent and now we tell them to pay with a credit card" is opposite to the OP position where he states "I do have savings to pay it off" and "main reason wanting to accrue points".

                Secondly, you view that "you'd be better off taking the money and investing in shares .." whilst true if someone has $47k cash laying around that needs to be invested does not apply to the OP because there is a liability that needs to be paid and the OP is willing to pay this liability in full.

                Thirdly, QF points have never been a form a currency (it might even state in the QFF program T&Cs that points have no monetary value) in its entire history so suggesting banks will not take them off is true but it is like saying 'canned tuna cannot be turned into drinking water because we are thirsty'.

                Fourthly, you can still use QF points - for flights, many frequent flyers book as far in advance as possible especially when it comes to premium class long-haul inventory. You can still redeem points for other things on the QF store too.

                But lastly, we will just have to agree with differences beceause if we all had the same opinion, same processes, we might as well turn into robots.

                • netjock on 01/08/2020 - 14:34

                  @TheMindsetTraveller: Main point

                  Paying 1.45c real cash flow right now to get points which are valued at 1c - 5c dependent on you spending cash on flight tickets for one year's time of which nobody knows if COVID19 is on going in which case Qantas could go under just like Virgin and border closure is not a very convincing argument.

                  Secondary point

                  I am not opposed to using cards with big sign up bonuses provided you can spend it without surcharge. No point paying 1.45c to get 1c cash value if you get gift cards. 5c of value if you buy a flight and can get the upgrade. Taking liquid cash right now to buy a non liquid value (5c) 365 days into the future? No thanks.

                  Secondly, you view that "you'd be better off taking the money and investing in shares .."

                  I must be the only one who puts their tax liability aside into an account that pays interest. At least I get some return and don't find myself in a hole at end of the year.

  • Platia on 28/07/2020 - 12:08
    +1

    This resource could be helpful

    https://www.pointhacks.com.au/ato-points-earning-cards/

    • [Deactivated] on 29/07/2020 - 08:24
      +1

      Thank you, i have read this but they are rather vague

  • anglais on 28/07/2020 - 13:34
    +12

    ATO currently seem to be offering 0% payment plans (up to 24 months). You might consider investing the money somehow as the return might be better than points.

    With no travel on the horizon the value of credit card points is severely diminished.

    • LemonShapedRock on 28/07/2020 - 16:42

      Totally agree with this strategy

    • daft009 on 29/07/2020 - 05:52

      This is what I would do and did.. then pay the installments by a cc ;)

    • Niko123456 on 29/07/2020 - 08:04

      How do you access the 0% payment plan?

      I tried googling something about the general interest charge being reduced but found nothing.

      • 11112007 on 30/07/2020 - 10:53

        You can negotiate with the ATO so you don’t have to pay any GIC over any payment period.

    • [Deactivated] on 29/07/2020 - 08:21

      yesss! how do you get the 0 interest payment plan? I tried to commence a payment plan in which they incorporated interest into the payments. If i oay 47k off in 14 months then the interest is 2000-3000

      • WoodYouLikeSomeCash on 30/07/2020 - 07:47
        +5

        Appears to be only for Small Business.

        • has an annual turnover of less than $2 million
        • has a recent activity statement debt of $50,000 or less that has been outstanding overdue for no longer than 12 months
        • has a good payment and lodgment compliance history, including
        • no more than one payment plan default within the last 12 months
        • no outstanding activity statement lodgements
        • is unable to obtain finance (such as a loan) through normal business channels
        • is able to demonstrate ongoing viability.

        https://www.ato.gov.au/general/paying-the-ato/help-with-payi…

        • daft009 on 31/07/2020 - 21:39

          Think the rules have changed, when I did a payment plan last we didn't meet many of these conditions and they gave a refund of the interest changed

      • ausmechkeyboards on 30/07/2020 - 19:07

        That sounds like nothing. How much was the interest?

  • cloudy on 28/07/2020 - 21:51
    -2

    you do realize paying a tax debt isn't tax deductible, even if you use a corp CC.

    And it would, in my opinion, the easiest form of audit check since the recipient is the ATO itself. lol

    Sorta sounds like breaking into the cop shop.

    • Tech5 on 28/07/2020 - 23:45
      +9

      The credit card fee/surcharge itself is tax deductible

    • Miss B on 29/07/2020 - 20:03
      +8

      Some people read posts before responding, just something to consider.

      • patinadiary on 30/07/2020 - 09:47

        That's a preposterous idea….reading the post takes time…..it is just easier to just post random opinions instead.

    • Blue Cat on 29/07/2020 - 22:32

      spotted the double-dole bludger

    • Kapinny on 31/07/2020 - 22:10

      nice try ATO

  • bweiss on 29/07/2020 - 07:47
    +1

    If this is 47k of personal tax obligation, you might want to look into the Fringe Benefit Tax obligations of using a corporate account to pay it. You may not find it as tax beneficial as you think.
    If your plan is to not declare FBT, then that would become a missapropriation situation which can incur actual legal proceedings, so I'd tread carefully.

    You may want to discuss with both a lawyer and a taxation accountant before doing anything… It sounds like you probably have some loose change to pay for advise from both ;)

  • backpaqer on 29/07/2020 - 07:57

    Spending more money to get a bigger deduction? It's like earning less so you pay less tax. You probably need a better accountant, they will be best to advise you when your tax bill is that large.

    • [Deactivated] on 29/07/2020 - 08:23

      My tax bill was even larger before minimizing my taxable income with expenses. HECS is a huge chunk of it also.

      • JoJoker on 29/07/2020 - 21:06

        sensible brag

  • darkchoc on 29/07/2020 - 15:32

    https://www.nab.com.au/business/business-cards/nab-qantas-bu…

    From the page:

    EARN POINTS ON ATO PAYMENTS
    Payments you make to the Australian Taxation Office will earn you Qantas Points at the same rate as regular everyday business purchases.

  • tanniesjunk on 29/07/2020 - 15:42

    look at pointhacks, or australianfrequentflyer - plenty of chat on both about similar queries.

    plenty of newish sites that allow you to pay them via card, and then they pay the end vendor direct, allowing you to earn points. (B2Bpay, rewardpay

    Just need to do your calcs and determine how much you value the points vs the cost to you.

  • Aerith-Waifu on 29/07/2020 - 15:58
    +1

    Math Question: If OP has a Debt of $47k from the Tax Man, how much OP earns?????

    • earth worm jim on 29/07/2020 - 16:14
      +1

      Considering ATO withheld tax and he still owes that much… easily a cool million.

      • itsme56 on 29/07/2020 - 17:22
        +1

        OP may have sold shares to a profit of ~150k (or to a profit of 300k if held the shares for more than 12 months). That would incur such a TAX bill.

        I wonder if OP bought AfterPay shares at $8 in march and sold them at $70… lol

        • Aerith-Waifu on 29/07/2020 - 17:29
          +3

          One of the worst ponzi scheme ever……………$70 with year after year loses………………

          • netjock on 31/07/2020 - 09:59

            @Aerith-Waifu: It is a legit. Buy now pay later business. Until a lot of people buy now and can't pay later in a recession.

            Best part about Afterpay is for 6% fee they will take the credit risk of the person not paying off the hands of the business. For Afterpay to go under it would mean 5% loss unless their shareholders tip back in.

            Unsecured personal credit like credit cards have quite a high default rate that is why the interest is so high. Also the reason why Afterpay were / is still asking people to pay 1/4 upfront to try to make sure they have people who have ability to repay. So if everyone doesn't pay back 6% of their original balance they are stuffed like a turkey at Christmas.

        • [Deactivated] on 29/07/2020 - 18:14

          I wish.

      • [Deactivated] on 29/07/2020 - 18:15
        +3

        I dont get my taxes withheld. I operate as a sole trader… i get 100% of my earnings then pay tax in one hit.

        • Blue Cat on 29/07/2020 - 22:35
          +1

          i get 100% of my earnings then pay tax in one hit.

          OK I am trying to suspect you are trolling. If you earn over $68,000 (before tax and before deductions) as a sole trader in a financial year, you are forced to pay PAYG installments which means you pay your tax once every 3 months instead of once every year.

          • gomango on 30/07/2020 - 11:58

            @Blue Cat: I think I'm learning how the system works from your post. Can I ask where does the $68,000 number come from as a quick Google didn't help me find the answer?

            • Blue Cat on 30/07/2020 - 12:28

              @gomango: It was about 4 years ago when I called ATO and it was my second year working on ABN, where I was enrolled into PAYG without even knowing.
              Wanted to opt-out but they said it was impossible because I earned over $68000.
              I couldn't find it online too but I just let it go and pay my quarterly payments like a good boy.

          • [Deactivated] on 30/07/2020 - 16:25
            +1

            @Blue Cat: it is my first tax return as a sole trader.

            • Blue Cat on 30/07/2020 - 18:26

              @[Deactivated]: Ahhhh, that explains it.
              You will be enrolled into PAYG and will be forced to pay quarterly tax payments + GST for sure!

              • SgtBatten on 31/07/2020 - 13:18

                @Blue Cat: Yep, My wife had a $5k debt a year ago due to a side hustle. She got forced to do PAYG installments for the past 12 months. The original PAYG notice we received asked for $3k. I adjusted it down to $1k and subsequent ones down to $500. She has a debt of $200 this year. sorted.

                Side hustle is finished now so if they try PAYG again this year we will be fighting that.

            • iainmacsoul on 30/07/2020 - 21:16

              @[Deactivated]: if you are going to be consistently earning a decent rate of income sole trader gives you very little flexibility or protection I would suggest you look at structuring an entity more fit to purpose

          • netjock on 31/07/2020 - 10:00
            +1

            @Blue Cat: Can't make money in this country without everyone trying to take you down.

      • iainmacsoul on 30/07/2020 - 21:18

        you can get to $48,000 owed well before a million, without structure even $300,000 income gives a tax payable of about $110,000

    • [Deactivated] on 29/07/2020 - 18:11
      +1

      tax is 30-40% of my income- do the maths =]
      i also have a 200k HECS debt

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