Earning Rewards on ATO Payments
Not so long ago, ATO payments attracted much the same earn rate on rewards cards as all other transactions. So, whether you used your card to cover the weekly supermarket shop or your quarterly tax payment, you earned the same number of points per dollar spent. Good times for all. Except it wasn’t. Card providers were losing out.
While it took a while, those card providers eventually realised that ATO payments were among the largest payments an individual or business was likely to make using a credit card. And as such, providers were paying out much more than they wanted to in rewards. The solution? While some cards lowered their earn rate on ATO payments, others excluded them altogether.
With that being said, it is still possible to earn rewards on ATO payments – as long as you choose the right card. As we said, not all credit cards offer points earning on ATO payments. So, how do you know which cards do and which cards don’t? There are two main ways to check.
Before you apply, you should always check the card’s PDS for important info. As a rewards card, it will usually have a specific rewards PDS, which provides all terms and conditions relating to the card’s rewards program. Check the earn rate to see whether ‘government spending’, ‘ATO payments’ or ‘tax payments’ is mentioned specifically. If not, check the list of transactions that are not eligible to earn points.
If you don’t find what you’re looking for, you can contact the card provider to clarify the situation. Depending on your provider, you may be able to do this by phone, by email, or by using the card’s provider’s chat service.
Comparing Earn Rates
As you compare your options, you may find that some rewards cards use a tiered structure for earning points. That means, instead of having one earn rate across the board, allowing you to earn say, 1 point for every $1 you spend, instead you will earn a different rate on different types of spending.
As an example, you may earn 3 points per $1 at the supermarket, 2 points per $1 on petrol, and 1 point per $1 on all other spending. Or, using a frequent flyer card, you may earn 2 points per $1 on flights with the program’s affiliated airline, and 1 point per $1 on all other spending.
With these cards – and any other rewards card you’re thinking of applying for – be sure to check whether ‘all other spending’ includes government spending. In many cases, you will find an asterisk after ‘all other spending’, that specifies a lower earn rate or an exclusion on government spending.
To choose the right card for you, you will need to think about how much you are likely to spend each year within each category. Consider the overall value of the points you would earn on each card, then subtract the card’s annual fee to find out how much value it offers overall. Before making a choice, be sure to take into account any points shaping or points caps the card puts in place.
Cards that shape points have one earn rate on spending up to a certain amount, after which point, a lower earn rate comes into effect for the rest of the month. The following month, everything resets.
Ben has a rewards card that shapes points. He earns 1 point for every $1 he spends up to $10,000 each month. For every $1 spent after that, he earns 0.5 points.
Within a month, Ben spends $12,000 on his card. For that spend, he earns 11,000 points (10,000 x 1 and 2,000 x 0.5).
While Ben finds this arrangement works well for this current monthly spend, he may not enjoy as much value on his card if his monthly spend was higher.
Cards with a points cap place a cap on the number of points cardholders can earn, either within each month, or over the period of a year. After reaching their points cap, cardholders no longer earn points on their spending until the cap resets the following month or year.
Carrie has a rewards card with a monthly points cap of 15,000 points. Her card earns 1 point per $1 up to that points cap.
Over a period of three months, Carrie spends $13,000 in the first month, $17,000 the next, and $20,000 in the final month.
She earns 43,000 points (13,000 + 15,000 + 15,000), despite having spent $50,000 on her card. If this spending is part of a larger pattern, Carrie could be better off switching to a different card that doesn’t cap points earning.
Why Choose This Type Of Card?
Still weighing up whether a card that earns points on ATO payments is right for you? Here are some reasons why this type of card might work for you.
You can earn more rewards: Making a rewards card work for you means getting more back than you put in. By channelling a larger spending through your card (say, by using your card to make your ATO payments), you could earn more in rewards and get more value back.
You could enjoy more perks: With more points in your account, you can enjoy more rewards. By using your points on higher-value rewards such as flights and upgrades, you can enjoy even more value on your card.
You could pass your perks on: If you’re feeling generous, you could pass your rewards on to someone special. Or, if you’re using your business card to pay your business tax payments, those earned rewards could be used to treat the business or employees who deserve it.
You could take advantage of extra features: Higher end rewards cards typically offer an array of extras, such as airport lounge access, travel credit and complimentary insurances. If these features provide value to you (bearing in mind you will likely pay a higher annual fee for the privilege of having them), they could be handy to have in your back pocket.
You could benefit from an intro offer: Rewards cards often entice new cardholders with intro offers, such as bonus points offers and reduced annual fees. These offers can add value to the card – but be aware of the small print, such as a minimum spend requirement.
What Should You Be Aware Of?
Weighing up your options means looking at the bad as well as the good. So, what should you be aware of as you compare credit cards that earn rewards on ATO payments?
Above all else, you need to know how much you will pay in surcharges as a result of using your credit card to cover your tax payment. Here’s how those surcharges stack up:
|MasterCard – International||2.70%|
|MasterCard – Domestic Debit||0.15%|
|MasterCard – Domestic Credit||0.70%|
|Visa – International||2.70%|
|Visa – Domestic Debit||0.36%|
|Visa – Domestic Credit||0.78%|
According to the ATO, this fee:
- is a percentage of the amount being paid, based on the type of card used
- is charged by your card supplier, not the ATO
- will be reviewed from time to time and may change
- is not part of your ATO debt
- is not subject to goods and services tax (GST)
- may be a deductible expense based on your circumstances.
In order to balance out that surcharge, your earn rate will need to provide you with sufficient points to make it worth your while to pay by card. While working out whether your earn rate is high enough, you will also need to look at the value of your points when you redeem them.
As a general rule, points redeemed on travel, such as flights and upgrades, tend to offer higher value than points redeemed elsewhere, for example on gift cards and merchandise.
Andre uses his card to cover a tax payment of $15,000. Using a Mastercard credit card, he pays a surcharge of $105. He earns 0.5 Qantas Points per $1 on ATO payments, giving him 7,500 Qantas Points on that spend.
Redeeming those points in the Qantas Store, Andre swaps 6,760 Qantas Points for a $25 prepaid Mastercard. Obviously, this is not good value, as he has spent $105 in surcharges only to receive just over $25 in gift card value.
On the other hand, Andre could choose to add those 7,500 Qantas Points to his existing points balance, to then redeem them within a larger chunk of points for a flight overseas. With 60,000 Qantas Points taking him from Sydney to LAX, that tax payment points earn becomes all the more valuable.
As with any rewards card, it’s important to weigh the cost of the annual fee against the value of the points you will get in return.
When using your card, it’s always advisable to pay off your balance before it starts accruing interest. If your tax payment is more than you can pay off in a month, you may find the interest you pay on your carried-over balance negates the value of the points you earn.
When you are approved for a credit card, you card provider will assign you a credit limit. If you plan on paying your taxes with your credit card, you will need to make sure your credit limit allows for this. If you go over your limit, you may be charged fees, further reducing the value of the points earned on the payment.
TIP: Card providers often update their conditions regarding ATO payments. Before you use your card to pay your taxes, it could be a good idea to double check whether your card still earns points on those types of payments.