When it comes to earning points, business owners often look beyond everyday expenses and consider how larger outlays—such as tax payments—can work to their advantage. By strategically using the right credit card, you can not only manage your tax obligations more efficiently but also accumulate a significant number of points, which can be redeemed for valuable rewards.
Why Use a Credit Card for Tax Payment?
While most credit cards allow you to earn points on eligible purchases, not all offer the same benefits for payments to the tax office. Generally, only a select few cards enable you to earn points on tax payments, often at a reduced rate. Despite the lower earn rate and additional fees, the points accrued can still translate into substantial rewards, such as travel or other business-related benefits.
How It Works
Let’s break it down with an example:
- Tax Invoice: $580,000
- Processing Fee: Typically, credit cards charge around 1.44% for tax payments, equating to $8,352 for a $580,000 invoice.
- After-Tax Cost: Assuming a 47% tax rate, the after-tax cost of the fee comes to approximately $4,427.
- Points Earned: Even with a reduced earn rate of 0.5 points per $1 spent, this transaction would still net you 290,000 points.
To put this into perspective, 290,000 points can often be redeemed for a Business Class return flight from Melbourne to London, a trip that typically costs around $10,000. So, for an after-tax cost of $4,427, you’re effectively securing a premium flight at a significant discount.
Maximising Points with Payment Platforms
If your credit card doesn’t allow you to earn points on tax payments or if you’re looking to maximise your rewards, consider using third-party payment platforms. These platforms enable businesses, sole traders, and trusts to pay for expenses that wouldn’t typically earn points through a credit card, such as rent, supplier payments, or service fees.
How It Works
- You pay the third-party service with your credit card.
- The service then makes the payment on your behalf to the intended recipient.
While these services typically charge around 2.15%, the benefits can be substantial:
- Invoice Amount: $580,000
- Service Fee: $12,470 (2.15%)
- After-Tax Cost: After tax deductions, the fee comes down to about $6,609.
- Points Earned: 725,000 points.
In this scenario, you and a business partner could enjoy a Business Class return flight to London, potentially saving you over $20,000 in travel costs, for just $6,609.
However, it’s essential to consider the fees involved and ensure the benefits outweigh the costs. With careful planning, your business can turn tax payments into valuable travel experiences or other significant rewards, making every dollar work harder for you.
