Breaking: ATO credit card ban delayed as government backs down after business backlash

A ban on credit card payments to the Australian Taxation Office (ATO) will be delayed, with the federal government agreeing to temporarily cover the cost of surcharges after pressure from businesses.

Treasurer Jim Chalmers is expected to announce more funding for the ATO to push back the ban on using a credit card to pay tax bills for up to 12 months.

The ATO announced last week it would stop accepting credit card payments for tax bills from December in response to the Reserve Bank's ban on surcharges.

The tax office had argued it would cost taxpayers about $200 million a year to absorb the fees and noted only 5 per cent of small businesses used a credit card to pay their tax bill.

But the decision sparked widespread backlash from small businesses, with several Albanese government ministers also raising concerns about the impact of the ATO's ban.

Yesterday, Housing Minister Clare O'Neil defended the Reserve Bank's decision to scrap the credit card fees, but argued the government had "real concerns" about what the ATO was proposing.

"The government does have some real concerns about what the ATO is proposing to do here," she said.

"We really want the ATO to go back and talk to business about what they have decided to do here and think about how they can find a solution that works for everyone."

Members of the crossbench also raised concerns about the change, with independent Kate Chaney calling on the ATO to reconsider or grant businesses a longer grace period to adjust.

"Credit cards are one way businesses manage cash flow when a tax bill lands. Removing that option with around eight weeks' notice makes things harder," she said.

Australian Chamber of Commerce and Industry chief executive Andrew McKellar had also called for a "clear message from government" in support of small business.

"It's now time, I think, for the political leadership in government to stand up and really say to the tax office, 'This is not how it works,'" Mr McKellar said yesterday.