Concepts
Surcharge
A surcharge is an extra amount added to a price, such as a card or public holiday fee, and it is generally part of the price for GST purposes.
A surcharge is an additional amount added on top of a base price. Familiar examples include card payment surcharges, public holiday surcharges at cafes and restaurants, fuel surcharges added by freight companies, and booking fees. For GST, the main question is whether the surcharge is part of what the customer pays for the supply, or whether it is a separate supply in its own right. In most everyday cases it is part of the consideration for the underlying sale.
When a business adds a surcharge to a taxable sale, the surcharge is generally included in the price on which GST is calculated. This means that if a registered business charges $100 plus a $2 card surcharge on a taxable sale, GST applies to the total of $102 as it is the consideration for the taxable supply. The GST payable is one-eleventh of the total GST-inclusive price, and the business reports it on the BAS along with its other sales. Customers should be able to see the total they will pay.
If the surcharge is added to a GST-free sale, the usual position is that it follows the underlying sale and does not by itself create GST. That is the general rule, but a surcharge that pays for a separate supply of services, such as a fee for a particular method of delivery or processing, can have its own GST treatment. When something is unclear, think about what the customer is really paying for and whether it could be bought separately.
Price display rules matter too. Prices shown to consumers should generally be the total price including GST and any compulsory charges, and surcharges for common payment methods need to be disclosed under consumer law, which is administered by the ACCC and state and territory bodies rather than the ATO. A business should make sure its invoices clearly show the surcharge and the GST so that business customers can claim credits.
A tax invoice that includes a surcharge should show the total amount payable and indicate the GST included. If the surcharge has a different GST treatment, for example, if some items are taxable and others are not, the invoice needs to identify which items include GST. Customers who are registered and who hold a valid tax invoice can claim credits for the GST in the surcharge to the extent the purchase is for their business.
Common misunderstandings include thinking a surcharge sits outside GST because it is a fee for a service rather than the goods, and charging GST twice by adding GST to a surcharge that already includes it. A related error is deducting card fees from receipts on the BAS instead of reporting the full sale and treating the bank fee as a separate expense. Unclear invoices lead to wrong credit claims.
Whether a particular charge is part of the price or a separate supply can depend on the facts. This is general information only, so please confirm your position with the ATO or a registered tax professional.
Worked example
A registered cafe charges a 10% public holiday surcharge on a taxable meal. The menu price is $50, the surcharge is $5 and the total is $55, which is GST inclusive. GST in the total is $55 divided by 11, which is $5.00. The cafe reports $55 as sales and $5 as GST on sales, with the net amount owing for the period reduced by any credits.
Practical tips
- Treat the surcharge as part of the GST-inclusive price on taxable sales and work out GST on the total, not just the base price.
- Show the surcharge as a separate line on invoices so customers can see what they are paying and so GST is clear.
- Record sales at the gross amount charged to customers and account for bank fees as an expense, rather than netting them off.