Client Note
The Surcharge Ban: Policy on the Run Again
Card surcharges ended on 1 October. The cost of accepting cards did not. It has moved from the cardholder to the business, and in the ATO’s case to every taxpayer.
What has changed?
Visa, Mastercard and eftpos now prohibit card surcharges, while American Express has also removed surcharging from 1 October 2026, and the RBA cut the interchange cap on consumer credit cards from 0.8% to 0.3%. Terminal, scheme and provider fees remain, so most businesses now carry a cost they previously passed on.
The ATO responded by announcing it would stop accepting credit cards after 30 November, citing almost $200 million a year in fees. On 9 October the Treasurer reversed this: the Government will fund the ATO’s card fees until 30 June 2027, at a cost to be disclosed in the December mid-year Budget update. After that date the ATO will accept credit cards only through third-party providers, which are likely to charge a fee.
In our view: This follows a now-familiar sequence: a measure designed for its headline appeal, consequences left unexamined until they arrive, and a hurried fix that creates new problems.
The reform moves the cost rather than removing it. Cash and debit customers now help fund credit card rewards through higher prices, and small businesses absorb the same fees the ATO is being funded to avoid. It is one more cost on an already long list. Whatever one's view of the reform, the practical response is to deal with it and move on.
For small business, it is another kick in the teeth on top of expanded AML compliance, funding payday super, productivity-sapping complexity, IR inflexibility, higher interest rates and intense Budget uncertainty, increasing taxes and compliance costs.
What to Expect
• Higher advertised prices, often rounded up.
• More discounts for bank transfer or cash, particularly on trade, professional and other large invoices. This is an “own goal” in terms of curtailing the cash economy.
• Many payees dropping credit cards or offering other incentives not to use them.
• Out-of-school-hours care providers, schools, councils and utilities all face the same arithmetic.
• Thinner card rewards: Many card issuers are reviewing reward programs, fees and complimentary benefits in response to lower interchange revenue.
• Further change: Budget costings in December, first fee pass-through data in January 2027, foreign-card caps from April 2027 and the end of ATO funding on 30 June 2027.
Small Businesses – What to do
• Remove every surcharge. Terminals, online checkouts, invoices and terms, including invoices issued before 1 October but paid afterwards. Card networks and providers enforce the ban through your merchant agreement, and relabelling a surcharge as an “admin fee” risks ACCC action.
• Cut the cost first. Get written post-1 October pricing, compare the total fee rather than the headline rate, turn on least-cost routing for debit cards, and renegotiate or switch providers.
• Keep pricing simple. For cafés and retailers, a modest rounded price adjustment beats running two prices. Keep payment-method discounts for larger invoices, offer them to everyone, and call them discounts.
• Use the ATO window. Credit cards remain fee-free for tax payments until 30 June 2027. Use the time to arrange an alternative for BAS and PAYG, such as cash reserves or a formal payment arrangement.
What this Means for You as a Cardholder
Premium cards: Weigh annual and program fees against the points you actually use, and read every change notice. Watch for shortened interest free days and diarise or automate payment on time.
Travel insurance: Do not assume you are covered. Check the current policy before each trip; standalone annual cover may now be better value.
Tax payment by card: Fee-free until 30 June 2027 and still useful for cash flow if cleared in full. Plan now for what comes after.
Large bills: When 2027 school fees and similar bills arrive, ask whether a direct debit or early payment discount applies. Some suppliers are offering vouchers and other incentives.
