Running a business often feels like a juggling act. You are managing staff, chasing sales, and trying to keep the lights on. One of the balls that gets dropped most frequently is the Goods and Services Tax (GST).
It is a common trap. You look at your transaction account on a Tuesday morning and the balance looks healthy. It feels like you have the cash flow to upgrade your equipment or stock up on inventory. However, if you are registered for GST, 10 per cent of your taxable sales does not belong to you. You are essentially acting as an unpaid tax collector for the government. If that money sits in your everyday transaction account, the temptation, and the accidental ability, to spend it is high.
Here is how you can ring-fence your tax obligations and ensure you are never caught short at BAS time.
The Psychology of the Bank Balance
The root of the problem is often psychological. We are wired to view the bottom-line number in our banking app as ‘available funds’. When GST is mixed with your operating capital, it inflates your sense of financial health. By the time the quarter ends and the BAS is due, you might find that you have eaten into the tax money to cover operational costs. This leads to payment plans, interest charges, and unnecessary stress.
Strategy 1: Separate the GST
The most effective way to stop spending your GST is to move it out of reach. Treat your GST liability like a bill that accrues daily.
Consider opening a separate high-interest savings account specifically for tax obligations. You can call it your ‘GST & Tax Provision’ account. Make it a habit to transfer the GST portion of your income into this account regularly. You might do this:
– Weekly: Review your sales for the week and transfer 10 per cent.
– Per Invoice: If you deal with large, irregular payments, transfer the GST component the moment the client pays.
By physically moving the money, your main operating account reflects your true spending power. Plus, if you put it in a savings account, you might earn a little interest to offset your bank fees.
Strategy 2: Know Your Net Position
It is important to remember that you do not just collect GST; you also pay it on your business expenses. This is where ‘Net GST’ comes into play.
– GST Collected: The 10 per cent you charge customers.
– GST Credits: The 10 per cent included in the price of business purchases you make.
Your actual liability to the ATO is the Collected amount minus the Credits. If you are buying a lot of stock or equipment, your liability might be lower than you think. Conversely, if your expenses are low (common for service-based businesses), your liability will be higher.
Regularly reviewing your cash flow reports ensures the amount you are setting aside matches your Net GST position, so you are not saving too little, or locking away cash you could actually use.
Strategy 3: Lodge and Pay on Time
Procrastination can be expensive. Even if you have the money set aside, failing to lodge on time can result in penalties. If you have used the strategies above, paying your BAS in full should be a simple administrative task rather than a financial crisis.
If you find yourself consistently struggling to separate these funds, it might be time to look at your broader cash flow management. At Nova Business Services, we help businesses implement systems that make tax compliance automatic and stress-free.
Our team is here to support you and your business in many different ways, give us a call on 1800 668 225 or reply to this blog by clicking here to ask us any questions.
