Is revenue-based finance tax deductible? How the fee on an EFTPOS advance is treated

For most businesses, yes: the cost of revenue-based or EFTPOS finance used for business purposes is a deductible expense. The lump sum you receive isn’t income, and paying back that original sum isn’t a deduction. What you can usually claim is the provider’s cost, the gap between what you were advanced and what you repay, and your accountant decides exactly how and when from the contract.

That’s the short version. The longer version matters because these products don’t look like an ordinary loan on your bank statement. Money comes out every day, often straight from your card settlements, and it’s easy to lose track of which part is the advance and which part is the cost.

How does the ATO treat the cost of borrowing for a business?

The ATO’s page on deductions for operating expenses lists, among everyday running costs, “bank fees and charges” and “interest on money borrowed for producing assessable income or purchasing income-producing assets”.

A revenue-based advance doesn’t usually call its cost “interest”. Providers talk about a fee, a factor amount or a total repayable. But the economic idea is similar: you pay a cost to use someone else’s money in your business. That’s why, in most cases, accountants treat the cost of a business advance as a deductible expense.

The key condition is purpose. If you used the money to buy stock, cover wages, repair equipment or bridge a quiet month, the cost is tied to earning business income. If part went towards a family holiday, that part generally isn’t.

Which parts of an advance are deductible, and which aren’t?

Here’s how the pieces of a typical card-based advance usually fall:

Part of the advance	Typical treatment	What to keep
The lump sum paid into your account	Not income; it’s borrowed money	The funding notice or settlement statement
Repayments of the original sum	Not deductible; you’re returning borrowed money	Provider statements showing the balance
The provider’s fee or cost	Usually deductible if the funds were used for business	The agreement showing the total repayable
Card sales collected by split settlement	Still your sales income, even though part went to the provider	Terminal reports showing gross takings
Terminal rental or merchant fees	Usually deductible as a business expense	Monthly merchant statements
Early payout or closure fees	Depends on the agreement and timing	The written payout letter

The row owners most often get wrong is the fourth one. When a provider collects through split settlement, your bank account only shows the net amount that arrives. Your sales, though, are the gross takings before the provider’s share was removed. Reporting only what landed in the bank can understate your income.

How is the fee spread across the year?

Most revenue-based advances fix the total repayable when you sign. If you receive $50k and agree to repay $60k, the $10k difference is the cost. But you don’t usually claim all of it on day one.

Accountants commonly spread the cost over the period the advance is repaid. If the advance straddles 30 June, part of the cost may fall in one income year and part in the next. The method depends on your accounting basis and the agreement, so this is one to leave with whoever prepares your return.

What you can do is make their job easy. Download the provider’s statement at the end of each month, or at least at 30 June, so the balance and the amount collected are clear.

Is there GST on the fee?

Usually not. The ATO’s page on financial supplies lists lending or borrowing money as an input-taxed financial supply. Input-taxed means the price doesn’t include GST and you generally can’t claim a GST credit for it.

So when you’re preparing your BAS:

• don’t claim a GST credit on the cost of the advance itself
• do report your card sales at their full amount, even if part was collected by the provider
• check separate charges, such as terminal rental, individually, because they’re not always financial supplies

If your bookkeeping software has auto-coded the provider’s daily debits as a GST-bearing expense, that’s worth fixing before your next BAS.

What if the agreement says it’s buying your future sales?

Some providers write their contracts as a purchase of future receivables rather than a loan. In plain English, they’re not lending you money; they’re buying a slice of card sales you haven’t made yet, at a discount.

That wording can matter for tax. It can affect how the cost is described in your accounts and when it’s recognised. It doesn’t usually change the overall picture that the cost is a business expense, but it’s exactly the kind of detail an accountant needs to see in full. Give them the whole agreement, not the one-page summary from the provider’s website.

If you’d like to compare a card-based advance with a structure that’s simpler to account for, such as a fixed-term unsecured business loan, a real person can walk you through the options in a quick call.

An illustrative example

Illustrative only. A hair and beauty salon takes a $40k card-based advance in March to fit out a new treatment room. The agreement sets the total repayable at a fixed amount, and the provider collects a share of every card settlement until it’s paid. The advance is fully repaid by October.

At tax time, the salon’s accountant:

1. Records the $40k as a liability, not income.
2. Adds back the provider’s share of each settlement so card sales are reported in full.
3. Treats the difference between the $40k and the total repayable as the cost, spreading it across March to October. Part falls before 30 June, part after.
4. Codes the cost as GST-free, because it’s a financial supply.
5. Treats the fit-out itself separately, as a capital item, with its own depreciation rules.

The owner’s job was simply to keep the agreement, the funding notice and the provider’s monthly statements in one folder.

What records should you keep?

The ATO expects businesses to keep records that explain their transactions. For a card-based advance, that means:

• the signed agreement, including any variations
• the funding notice showing the amount paid to you and the date
• monthly or periodic statements from the provider
• terminal or gateway reports showing gross sales
• a note of what the money was used for, especially if any of it wasn’t business spending
• the payout letter, if you closed the advance early

With those, your accountant can deal with the deduction, the GST and the income in one sitting. Without them, they’ll be reconstructing daily collections from bank statements, and you’ll be paying for the time.

The principle is the same whether you trade as a sole trader, a company or a trust: the cost follows the business use of the money. What changes is how easy it is to prove. A company or trust with its own bank account and its own terminal makes the trail obvious. A sole trader who runs takings and household spending through one account will have more explaining to do, so a separate business account is worth setting up before you take the next advance.

For more on how these products work day to day, see our page on revenue-based and EFTPOS finance, or compare it with cash flow loans and working capital loans.

Planning your next advance with tax in mind?

If you’ve just untangled last year’s card-based advance with your accountant, you know exactly how much admin those daily collections create. That’s a good moment to ask whether the next round of funding should look different, perhaps a simpler term loan or a line of credit that sits neatly in your books.

Our enquiry takes about 60 seconds, and there’s no credit check when you first enquire. We don’t send your details to a pile of lenders, so you won’t be chasing calls you never asked for. A real person looks at your turnover, your existing commitments and what you need the money for, then calls you to talk it through. Please fill the form in accurately so the options we suggest fit your situation first time.

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