Putting Money Aside for GST and Tax Without the Guesswork

Money lands in your business bank account, and suddenly it looks like you have plenty of cash to work with. Except not all of it is yours to spend.

Some may need to cover GST, tax, wages, upcoming bills and other expenses. So moving money into separate bank accounts can make managing your cash much easier, but it often brings up another question:

How do you know how much to move, what you’ve already put aside, and whether you’re actually saving enough?

The good news? You don’t need to track every dollar manually or create a complicated system in Xero.

Give Your Money a Job

Separate bank accounts make it easier to see what your money is for, rather than having one big balance sitting in your everyday business account.

Depending on your business, you might have separate accounts for:

Your setup doesn’t have to look exactly like this. The aim is to separate money you can spend, from money already earmarked for something else. If you’re unsure which accounts could work for your business, have a read of The 6 Bank Accounts Every Business Needs, or listen to Money Moves: Your Essential Bank Accounts.

Your GST Account Isn’t a Xero Account

This is where things can get confusing. If you receive $1,100 from a customer, including $100 GST, you don’t need to allocate $100 of the payment to a GST Savings account when processing the invoice in Xero. Xero (or your accounting software) records the GST component when the transaction is entered correctly with the GST Code you use.

Your separate GST bank account has a different purpose. It’s somewhere to physically hold the cash you’ve put aside towards your next BAS. Think of the two separately:

1. Xero records what is happening in your business
2. Your bank accounts help you manage the cash

So rather than trying to split every invoice or bill between different accounts in Xero, keep your bookkeeping accurate and use regular bank transfers to move your cash where it needs to go.

How Much GST Should You Put Aside?

One simple option is to move the GST collected from your sales, anytime customers pay you, straight across into your GST bank account. Sticking with our $1,100, if your customer paid you this amount, this would mean moving $100 across. Keep in mind the GST you collect isn’t necessarily the amount you’ll pay on your BAS.

GST credits from your business expenses will reduce the amount of GST you have to pay, but your BAS can still include other amounts from PAYG withholding (tax from the teams wages), or income tax instalments. So having a little more sitting in your GST bank account isn’t necessarily a bad thing. It’s far nicer than a BAS arriving without enough cash to pay it!

For more on this, head over to Stress Less: Here’s How to Save for BAS.

What About Everything Else?

There isn’t one magic percentage to move into your other bank accounts. What you put aside will depend on your business and it’s upcoming obligations. A few places to start could look like:

💰 Income Tax: Ask your accountant what percentage or amount makes sense based on your expected profit and tax position.

👛 Wages: Know what your regular pay runs cost, and make sure enough cash is put aside ready for payday, including super.

💻 Business Expenses: Look at your regular monthly costs and upcoming larger expenses so you know what needs to stay available. Work out what percentage of your income this roughly is and pop that aside from your income every couple of weeks as a starting point.

Keep Track and Make It a Routine

If your separate bank accounts are connected to Xero (and they should be), you’ll be able to see their balances on your Xero Dashboard. This gives you a quick visual check of what you’ve already put aside. For GST and PAYG Withholding, you can add these to your Dashboard Account Watchlist to keep an eye on their totals.

Remember: Xero is only as accurate as the information in it. If your bookkeeping is behind, your GST figures will be behind too.

Choose a regular time to move your money. Weekly, fortnightly, or alongside your normal bookkeeping routine can all work. If you already have a regular finance date in your diary, add your transfers to it! Our Habit Stacking blog has a few ideas to help make financial routines stick.

Less Guessing, More Clarity

The goal isn’t to create a complicated collection of bank accounts or spend hours moving tiny amounts of money around. It’s to stop looking at one big bank balance and thinking it’s all available to spend.

A few simple accounts that work for you, a clear idea of what you’re saving for, combined with a regular transfer routine can make GST, tax and other upcoming expenses far easier to manage. And the best bit, when the next BAS or tax bill lands? The money is already waiting 🙌