Credit Card Surcharges & GST

Credit Card Surcharges & GST

Credit Card Surcharges & GST

Inland Revenue have been asked about their position on credit card surcharges & GST.

To be clear, these surcharges should not be confused with the credit card charges levied by the banks on their customers. Bank fees & interest don’t attract GST as they are a financial service. They are characterised as ‘exempt supplies’ under the Goods and Services Tax Act 1985.

The IRD opinion applies purely to ‘surcharges’ or ‘card payment fees’ levied by suppliers on their customers or clients who choose to use credit cards to pay their bills.

We are finding that this is becoming more and more common.

Restaurants, hotels and airlines all seem to add surcharges when customers elect to pay them by credit card. Online purchases often carry a surcharge for using a credit or debit card. Even the council applies a credit card surcharge when you pay for parking on the side of the street.

The justification is clear, although it remains controversial. The credit card companies charge the suppliers for using the facility and so the surcharge is put in place to recoup the cost. Suppliers argue that other forms of payment such as cash or internet banking do not attract costs and so they are simply recovering the cost of offering the credit card service.

The IRD believe that surcharges should attract GST. They believe that they should have the same GST treatment as the service or good supplied. Whether or not the supplier charges the fee directly or through a third party or agent does not alter their view. GST would still apply.

Inland Revenue is seeking feedback on their exposure draft by 31 July 2018.

With the banks now charging to deposit cheques, we wonder how long it will be until someone offers a cheque surcharge. Perish the thought!

Angus is the CEO and founder of Generate Accounting.