Are Processing Fees Tax Deductible?

When you’re preparing your business activity statement for the ATO, you’ll have the opportunity to claim deductions for certain expenses. Typical expenses include things like company vehicle use, and mobile phones, but what about credit card processing fees?

Understanding business tax deductions

Work related deductions can include any necessary expenses incurred in the everyday operation of a business. For these to qualify as ‘work related’ in the eyes of the Australian Tax Office, you must meet criteria like the following:

• The expense must be related to your business

• You must not have received any reimbursement

• You must not have spent the money on personal expenses

• You must have financial records including proof of purchase

Some deductions can blur the lines between personal and private expenses. For example, freelancers working from home might be able to claim part of their utility expenses used in the home office.

Common types of deductions

The ATO offers a comprehensive list of work-related deductions on its website to help you determine what qualifies. Generally, these deductions break down into the following categories for individuals:

• Transport and travel expenses

• Working from home expenses

• Self-education expenses

• Clothing and laundry expenses

• Tools, equipment, and machinery

For businesses, the ATO states that most expenses incurred in the line of work will be deductible. It also provides a list of expenses that don’t qualify for a tax deduction. For example, while clothing for work would qualify, clothing for your children would not. Traffic fines, entertainment expenses, and expenses related to a private hobby would also not be eligible.

Are credit card processing fees taxed?

Now that we’ve outlined the types of expenses that are eligible, it’s time to move onto credit card fees. When you set up a merchant account to accept card payments from your customers, the payment processor will charge per-transaction fees. 

Are credit card processing fees taxed? 

The answer is no, you wouldn’t include fees as taxable income. Only the actual transaction cost would be taxed. Instead, you’re paying these fees as a regular business expense.

When are processing fees tax deductible?

If credit card processing fees qualify as a business expense, this means they’re automatically tax deductible. These qualify as operating expenses, meaning they should be claimed in the year that the expense is incurred.

Another factor to consider is that if you are a sole trader using a business credit card, these fees would also be deductible. This is because they’d be incurred in the production of business losses and outgoings. For example, credit card interest incurred while conducting business will usually qualify as a tax deduction.

How to deduct processing fees

As with any business expense, you’ll need to have proof of purchase and keep detailed financial records of your outgoings. Remember that processing fees include:

• Per-transaction fees

• Flat rate fees

• Mark-up fees

• Authorisation fees

• Statement fees

• PCI compliance fees

The specific processing fees you pay will depend on the payment processor or gateway. Apart from keeping a record of your fees, you’ll need to submit these to the ATO when filing your regular business taxes. The type of return will depend on your business structure.

Sole traders should claim deductions in their individual tax return using the ‘Business and professional items’ schedule. Partnerships, trusts, and companies will use their corresponding tax return and list the expense under the deductions section. So, are credit card processing fees tax deductible for a business? If you’re in any doubt, it’s best to speak to an accountant for advice.

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