Are Credit Card Fees Tax Deductible?

How do taxes work on credit cards?

When using the same credit card for business and personal purchases, you must maintain clear records to avoid issues at tax time.

If you run a business or are a sole trader, like a freelancer, you might make purchases throughout the financial year on your credit card. When these purchases are considered business expenses, such as day-to-day operating expenses or purchases of products or services for your business, the interest charges and other credit card fees might be tax deductible.

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Maintaining clear boundaries between business and personal transactions on your credit card is important to avoid issues with the Australian Taxation Office (ATO). Using a business credit card is a great way to keep bookkeeping straightforward.

Taxes on personal vs business credit cards

Using a credit card for both business and personal use is possible. However, if you do so, you must be transparent about which purchases were for business and only claim deductions for these transactions.

According to the ATO tax deductions guide for businesses and organisations, there are three rules to determine if it’s an acceptable business deduction:

The expense must have been for your business, available as an allowable deduction and not for private use.

If the expense is for a mix of business and private use, you can only claim the portion that is used for your business.

You must have records to prove it.

The amount of your deduction and when you can claim it will depend on the type of expense (for example, certain capital expenditures are deductible over time) and whether it has any private or domestic purpose, for which you must reduce your deduction. Also, some expenses are not deductible, for example fines.

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In summary, the purchase influences your tax return rather than the card itself. Having a business credit card separate from your personal card may be worthwhile to avoid making mistakes.

Credit card fees that are deductible

If you attribute a fee or charge to business expenses, you can include it as a deduction. However, it’s crucial to research independently how the ATO will view your credit card fees.

Here’s a list of fees that are commonly deductible if related to a business expense:

Annual fee
Interest charges
Late payment fees (if you don’t make the minimum payment by the due date).
Over-limit fees (charged if you exceed your credit limit).
Foreign transaction fees (charged on international transactions, such as payments made in foreign currency or with foreign merchants).
Merchant fee (charged by banks or payment processors for handling credit card transactions).
Replacement card fee (sometimes charged for issuing a new card if the original is lost or damaged).

For specific advice, speak with a qualified accountant or tax professional.

» MORE: Can you pay the ATO by credit card?

Record-keeping tips for credit cards

Knowing what expenses you can deduct from your tax return is essential for any business. However, the ATO has strict guidelines on how to prove these expenses. Keeping detailed proof throughout the financial year is critical.

Receipts and statements: Keep all credit card statements and receipts from purchases on file, and keep a digital copy on file. Consider using automated software to organise and label these copies for easy organisation.
Consider separate cards: Use a business credit card only for business purchases. That way all transactions and statements will be easier to track in one place.
Stay organised: The ATO accepts deductions for all parts of the business. There are expenses for starting, running, changing, closing and selling a business. If you only have one credit card, organising your expenses into these categories can help provide proof at tax time and separate transactions into business and personal.
Match receipts to statements: Match receipts and statements to ensure proof of use and how it relates to business practices. Clearly label the purchase and how it relates to business practices and include the receipt and statement together.
Comply with ATO requirements: Generally, you need to keep your records for five years in compliance with the ATO regulations, and you cannot change the information in those records.
Keep records of fees: When you receive and pay credit card fees, organise them into one place with proof of how they relate to business activity.