Treasurer Jim Chalmers on Friday announced extra funding for the Australian Taxation Office to push back the deadline from its initial date of November 30.
The tax office surprised businesses by dropping the news that it would no longer accept the payment method on October 1, the day that a ban on card surcharges came into effect.
"Australian small businesses have said the ATO's announced timeframe was inadequate and we have taken these concerns seriously and acted on them," Dr Chalmers said in a statement.
"Labor will always back small businesses because we know how important they are to our economy."
At the time, ATO commissioner Rob Heferen said merchant fees were expected to cost the tax office almost $200 million annually, which it could not absorb as it would result in less funds available for government services.
"Meeting the cost of surcharges through additional public funding for the ATO would have the same ultimate outcome," he said.
But Dr Chalmers bowed to pressure and handed the tax office extra funding to delay the credit card ban until June 30, 2027.
The cost of the funding boost will be finalised in the mid-year budget update in December, Dr Chalmers said.
He blamed credit card companies for not offering low enough fees to allow the ATO to keep accepting card payments.
"The ATO will continue to engage with card companies on this matter," he said.
After June 30, the ATO will continue to accept credit card payments via third parties as well as debit cards and bank transfers, Dr Chalmers said.
Shadow Treasurer Tim Wilson said Labor was at fault for the ATO decision because they triggered the surcharge ban.
"They didn't think through the consequences of it, and there's a massive double standard," he told News24.
"The prime minister (Anthony Albanese), clearly he likes to humiliate his treasurer, but the prime minister has clearly forced Jim Chalmer's hand again because he wouldn't listen to the community and the consequences of decisions."
The tax office said only five per cent of small businesses used credit cards to pay tax in 2024/25.
The Reserve Bank of Australia, which oversaw the reforms, said 85 per cent of small merchants did not impose surchages before the ban was put in place and would not be impacted by the change.
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