Tips for Assessing Your Credit Card Program

Everyone loves to go on holidays and if we can use our credit card to get us there quicker it’s a no-brainer…right? There is so much benefit to be had from credit card award points generated through business expenditure, especially in an industry such as veterinary where there are numerous purchases to be made each month. Credit card providers are always introducing new options, so how do you assess your credit card program to ensure that it’s really working for you?

There are four things to consider when weighing up the program:

COUNT THE COSTS
These costs should be considered when determining both the best credit card for your particular business and also whether credit card is actually the best method of payment:

Annual Fees
These can range from nil to thousands, depending on the card type and benefits provided. Generally, cards with awards programs have an annual fee attached – this isn’t necessarily a negative, you just need to ensure that the benefits you get from the card outweigh the costs of holding it. You should look to limit the number of business credit cards that you are using, as having multiple cards with hefty annual fees quickly adds up.

Merchant Fees
Many suppliers and merchants that allow payments via credit card (including the ATO and some finance providers) will charge you a merchant fee on your credit card payment in addition to the cost of the item you are purchasing. The rates often differ between AMEX, Visa and Mastercard so it is worth calculating the benefit obtained under the credit card award program versus the merchant fee that is paid. A higher number of points may accrue under one card but it’s actually a less beneficial option once the merchant fee is charged.

Interest
If you aren’t planning to repay your credit card every month, you will need to factor the interest cost on the card balance when assessing the overall benefits. It may be that a card with a lower interest rate, but less points earned on purchases, places you further ahead financially than earning additional points but having a higher interest rate.

CHECK THE INCLUSIONS (AND EXCLUSIONS)
One of quickest ways a business owner can increase their award points is by paying tax bills on their credit card. Many credit card providers now specifically exclude tax payments from attracting reward points – even programs that had previously included them. It’s important to monitor this and read the fine print so you aren’t paying merchant fees on a payment that isn’t actually earning any points!

It’s also important to consider the cap limits on your cards. Some credit cards cap the total number of points that you can earn each year. This isn’t usually on a dollar limit but rather a cap on points earned. This means that any bonus points you receive on signing up for your card could rapidly decrease the limit available. Another thing to consider is that whilst the best reward points are available on ‘private use’ cards, if your bank or credit card provider catches you running large business expenditure through the card, they can quickly shut down the benefits. There are a number of websites that offer useful comparisons on the points that you can earn on each type of card.

DO THE CONVERSION CALCULATIONS
It’s important to confirm exactly how the points on your card convert when you want to claim them as they don’t always convert one for one when transferring to frequent flyer points. What could look like a fantastic offer when signing on isn’t actually that beneficial when you want to use your points. Additionally, if you are purchasing a particular item with points, make sure you compare how much the item costs if you were to pay for it instead (especially if it is a business-related purchase and therefore tax deductible).

KNOW THE TAX CONSEQUENCES
Generally, the ATO acknowledges that where you are charged a merchant fee for the payment of your business expenses (including tax/BAS), then the merchant fee is generally tax deductible.

However, if you claim this fee, you are inherently declaring that the transaction was for business purposes which means any benefit you receive on the points program may be counted as assessable income in your hands. ATO Practice Statement 2004/4 advises that the ATO doesn’t intend to review this for people earning less than 250,000 frequent flyer points annually, unless they are using the card in such a contrived way that it is only to generate credit card points. For those who earn more than 250,000 points per annum, it doesn’t necessarily make the points assessable. However, you may want to assess how these points are being accrued and used. One point of note is if you redeem the points you earned from business purchases for either cash back on your credit card or vouchers, this is likely to be deemed as business income by the ATO, as the benefit is directly measurable.

By Elissa Lippiatt, Chartered Accountant and Director

This article is designed to provide generic information only and should not be viewed as a recommendation to act or financial advice. Individuals should seek advice from a qualified adviser to ensure their actions are commensurate with their financial needs and requirements. Whilst every effort has been undertaken to ensure accuracy of information at the time of publication, the information contained within the article may have changed prior to and subsequent to the article’s publication.

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