Chartered Accountant Timothy Quinn leads Tax & Accounting at Lawpath. 16+ years in tax advisory, specialising in startup growth and expansion. Passionate about supporting entrepreneurial clients with early-stage investment incentives, restructuring, international exit strategy planning, and more.
- Usually, merchant and payment processing fees are tax-deductible.
- Don’t assume that every payment provider’s fee has the same GST treatment.
- Check the provider’s tax invoice or merchant statement to see if GST has been charged.
- If your business is registered for GST, you may be able to claim an input tax credit.
- Record the gross sale separately from the merchant fee instead of treating the net bank deposit as total revenue.
- Card surcharges have changed, but merchant processing costs haven’t disappeared.
Merchant fees are a routine cost for Australian businesses that accept card, online, or digital payments. Whether they are deductible, if GST applies, and how they should be recorded can affect both your income tax position and your BAS reconciliation.
- What are merchant fees?
- Are merchant fees tax-deductible?
- Are Stripe, Square, and PayPal fees tax-deductible?
- Do merchant fees include GST?
- How should you record merchant fees in your accounts?
- Can you increase your prices to cover merchant fees?
- Merchant fee tax and accounting checklist
- When should you get accounting or tax advice?
- FAQs
What are merchant fees?
Merchant fees are charges a business pays to a bank, acquirer, or payment provider for accepting and processing customer payments. They are generally the business’s costs of accepting customer payments via EFTPOS, credit or debit cards, online gateways, or digital payment platforms.
Common examples include:
- Transaction fees
- Percentage-based processing fees
- Terminal fees
- Monthly merchant facility fees
- Payment gateway fees
- Settlement fees
- Chargeback-related fees
- International or currency-related payment fees
Not all provider fees are treated identically for GST or tax purposes. “Merchant fees” is a broad term, so your invoice or provider statement may describe the charge differently.
Are merchant fees different from card surcharges?
Yes. The terms are often confused, but they sit on opposite sides of the payment transaction.
| Merchant fee | Card surcharge |
|---|---|
| Charged to the business by its payment provider | Previously charged by the business to the customer for paying by card |
| Business expense | Customer-facing charge |
| Continues after October 2026 | Generally removed under participating card-network rules |
| Tax/GST treatment depends on the business expense | Part of the customer transaction/pricing treatment |
Understanding this distinction matters because a business may no longer be able to pass on a card surcharge, while still paying its provider a merchant fee for processing the payment.
What changed for merchant fees after the card surcharge ban?
From 1 October 2026, EFTPOS, Mastercard, and Visa introduced no-surcharge rules following the RBA’s changes to card payment regulation. American Express and UnionPay also moved to remove surcharging from that date, with PayPal following from 5 October.
For accounting, what matters is that there is no longer a surcharge. However, there is still a merchant fee. Businesses still pay their provider for accepting card payments, and the RBA says those costs can instead be reflected in overall prices.
Are merchant fees tax-deductible?
You can usually deduct merchant fees incurred in earning business income just as you would with any other ordinary business expense. They are subject to the usual rules for deductibility.
The basic test is that the expense should be incurred in carrying on the business or producing assessable income, and must not be private, domestic, or otherwise excluded. If you only use the merchant to receive customer payments, the connection to business income should be pretty straightforward.
That said, these deductions aren’t always automatic. The key question is always whether the particular fee relates to the business’s income-producing activity.
Which merchant fees can a business potentially claim?
The table below is a practical starting point for identifying the fee before applying the correct tax or GST treatment.
| Fee | What to check |
|---|---|
| Per-transaction processing fee | Business connection and GST shown |
| Percentage of transaction value | Provider statement/tax invoice |
| Monthly merchant account fee | Whether wholly business-related |
| EFTPOS terminal rental | Business use |
| Payment gateway subscription | Business use and GST treatment |
| Chargeback administration fee | Nature of the charge |
| International transaction/conversion fee | Connection to business transaction |
| Payment-platform subscription | Whether the service is used for business |
What if you use the payment account for business and personal transactions?
If your expenses have both business and private components, only claim the business-related portion. The ATO applies this apportionment principle broadly to transaction fees and other mixed-use expenses.
Ideally, you should use separate business payment facilities or accounts. This simplifies reconciliation, reduces the need for apportionment, and makes it easier to support the business portion of any fees claimed.
Are Stripe, Square, and PayPal fees tax-deductible?
The same deduction principles apply to payment provider fees. The brand doesn’t matter – a Stripe transaction fee is the same as a Square or PayPal transaction fee for ATO purposes. What matters is whether the fee was incurred in the course of earning business income.
If you use any of these payment providers exclusively to receive business sales, you should be able to claim the fee as a business expense. However, if you also use the account for private matters, you can only claim the business-related portion.
Since these are global providers, you should also check their Australian tax documentation for the GST information. Don’t just assume the fee is “10% GST”.
How do you reconcile Stripe, Square, or PayPal payments?
If you’re using Stripe, Square, or PayPal to process payments, here is a practical reconciliation workflow:
- Start with gross customer sales from the payment platform.
- Identify refunds separately.
- Identify merchant/payment processing fees.
- Identify GST included in applicable fees.
- Confirm the net settlement.
- Match the settlement to the bank deposit.
- Reconcile outstanding settlements.
| Payment record | Example |
|---|---|
| Gross customer payments | $5,000 |
| Less refunds | $200 |
| Less merchant fees | $90 |
| Net settlement | $4,710 |
The exact accounting treatment depends on your accounting system and GST basis.
Do merchant fees include GST?
Many merchant services are subject to GST, but you should check the specific fee and tax documentation rather than assuming every payment-related charge includes GST.
Review:
- Provider tax invoice
- Monthly merchant statement
- GST amount shown
- Provider entity issuing the fee
- Type of charge
Ultimately, the GST treatment depends on what the provider has actually charged and documented.
Can you claim GST credits on merchant fees?
If you are registered for GST, you should be able to claim an input tax credit for GST included in a merchant fee, subject to applicable rules.
In practice, check that:
- Your business is registered for GST
- The acquisition relates to carrying on the enterprise
- GST was actually included
- The business holds the required tax invoice or supporting documentation
- The acquisition is not private or otherwise excluded
If GST wasn’t charged, you can’t claim a GST credit. Additionally, keep in mind that your income tax deduction is calculated separately from any GST credits rather than automatically matching the total GST-inclusive price.
When you’re unsure about GST treatment, confirm with the provider. You may also seek accounting advice when necessary.
How should you record merchant fees in your accounts?
For bookkeeping purposes, record the customer sale at its gross amount, then record the merchant fee separately. This prevents the net amount deposited into your bank account from being mistaken for total revenue.
For example:
- Customer pays: $110
- Payment provider fee: $2.20
- Amount deposited into bank: $107.80
The accounting records should not simply show:
- Sales = $107.80
Instead, the business needs to recognise:
- Gross customer transaction
- Merchant fee
- Net cash received
You should establish your own system for properly recording transactions. The above serves as an example only.
What records should you keep for merchant fees?
Keep records that show both the customer transaction and the provider’s charges. A practical checklist includes:
- Merchant statements
- Payment-provider tax invoices
- Transaction reports
- Settlement reports
- Refund records
- Chargeback records
- Bank statements
- GST amounts
- Monthly reconciliation reports
- Invoices for terminal or gateway fees
Again, don’t simply rely on the amount that appears in the bank account. The provider report is often necessary to reconstruct gross sales and fees.
Why does gross revenue matter?
Gross sales and net bank receipts answer different accounting questions. If payment providers deduct fees before depositing money, the bank deposit doesn’t necessarily equal sales revenue.
Recording only the deposit can:
- Understate sales
- Hide processing costs
- Make GST reconciliation harder
- Make payment-provider reports difficult to reconcile with the bank
This is particularly important for high-volume ecommerce or card-based businesses. Many small fees can add up to a material expense and create reconciliation differences if you don’t record them separately.
Should merchant fees be deducted from sales income?
Don’t simply net merchant fees against sales, as that obscures the gross transaction. You should separate gross sales, GST on taxable sales, merchant/payment expenses, and net settlement.
This gives accountants a clean audit trail between the POS or payment provider, accounting records, and bank account.
Can you increase your prices to cover merchant fees?
Businesses may account for payment costs when setting their overall prices, and the RBA explicitly recognises incorporating payment costs into sticker prices as an option after surcharging.
However, including the cost in your price doesn’t change the need to record the payment provider fee separately when it’s incurred. The fee remains a business cost, even if you’ve adjusted its pricing to absorb it.
For pricing display and surcharge rules, see Lawpath’s existing card surcharge article.
Should you review your merchant fees after the 2026 changes?
Yes, but treat this as an accounting and business-cost review rather than simply a shopping exercise.
When reviewing, consider:
- Your current percentage and transaction fee
- Fixed monthly fees
- Whether your transaction volumes match your plan structure
- Whether lower interchange costs flow through to your merchant pricing
- Your merchant statements
- Separating payment costs from settlement amounts
The RBA’s reforms also introduce staged fee-transparency measures through late 2026 and 2027, which may make it easier for businesses to compare provider costs over time.
Merchant fee tax and accounting checklist
- Identify each merchant/payment-processing fee.
- Confirm it relates to business activity.
- Keep the provider invoice or merchant statement.
- Check whether GST is actually shown.
- Claim eligible GST credits when the requirements are met.
- Record sales at the appropriate gross amount.
- Record merchant fees separately.
- Reconcile provider settlements to bank deposits.
- Separate refunds and chargebacks.
- Apportion mixed private/business costs where necessary.
- Review merchant pricing following the 2026 payment changes.
- Check treatment with an accountant if provider fees or GST are unclear.
When should you get accounting or tax advice?
Get accounting or tax advice where:
- Settlement reports don’t reconcile with bank deposits
- Merchant fees have historically been netted against sales
- GST has been claimed without provider documentation
- Several payment providers are used
- There are high refund or chargeback volumes
- Transactions involve overseas providers or currencies
- Historical BAS amounts may be incorrect
- The business is changing pricing following the surcharge reforms
A registered tax or BAS agent can review the provider documentation, confirm the GST treatment, and help correct the bookkeeping before the issue affects future BAS or income tax reporting.
FAQs
Are merchant fees tax-deductible in Australia?
Merchant fees are generally deductible when incurred in the course of earning business income and meet the ordinary deduction rules.
Are credit card processing fees tax-deductible in Australia?
Credit card processing fees are commonly deductible business expenses for businesses that accept card payments to earn income.
Do merchant fees include GST?
Some merchant fees include GST, but not every payment-related charge will. Check the provider’s tax invoice or merchant statement for the GST amount rather than assuming GST applies.
Can you claim GST on merchant service fees?
A GST-registered business may claim an input tax credit if GST was actually included in the merchant service. No GST charged means no GST credit is available.
Are Stripe fees tax-deductible in Australia?
Stripe fees are generally deductible if they relate to receiving business payments. Check Stripe’s Australian tax documentation to confirm whether GST was charged on the relevant fee.
Are Square fees tax-deductible?
Square fees are generally deductible when incurred in the course of earning business income. Review the Square statement or tax invoice to identify the fee and any GST component.
Are PayPal fees tax-deductible?
PayPal merchant or payment fees are generally deductible when they relate to business sales. If the PayPal account is used for both business and personal transactions, claim only the business-related portion.
Should merchant fees be deducted from sales?
For bookkeeping purposes, you should record merchant fees separately from gross sales. Deducting them from sales can obscure revenue, processing costs, and GST reconciliation.
Do you record gross sales or the net payment after fees?
Record gross sales, then record the merchant fee separately and reconcile the net settlement to the bank deposit. The net bank payment is not necessarily the business’s total revenue.
How do you account for Stripe or Square fees?
Record the customer payment at its gross amount, identify the Stripe or Square fee separately, account for refunds separately, then reconcile the net settlement to the bank.
Are EFTPOS terminal fees tax-deductible?
EFTPOS terminal fees are generally deductible where the terminal is used for business purposes.
Can businesses still claim merchant fees after the card surcharge ban?
Yes. The surcharge ban affects what businesses can charge customers, not whether they pay their payment provider. Merchant fees remain business costs.
