Quick answer
Setting aside tax from every sale means moving the GST component of each customer payment, and the PAYG withholding and super from each pay run, into a separate account as soon as it arrives. Adding a regular amount towards PAYG instalments or income tax completes the system. When the BAS or tax bill arrives, the money is already there, which prevents ATO debt and the need to borrow for tax.
Key points
- GST and PAYG withholding are collected for the ATO, not for you.
- Use a separate tax account, topped up every week.
- Include super now that it is paid with wages from 1 July 2026.
- Review the balance against your BAS estimate each month.
The BAS shock is one of the most common and most avoidable cash flow problems in Australian small business. Over a quarter, GST and PAYG withholding pile up in the everyday account, quietly funding wages, stock and rent. Then the BAS arrives and the money has gone. The fix is not complicated: move the tax portion of every payment into a separate account the moment it arrives. This guide shows how.
Why tax money gets spent
When a customer pays a GST-inclusive invoice, part of that payment is GST you have collected on behalf of the ATO. When you pay wages, you withhold tax from employees’ pay for the ATO. Both amounts sit in your account until the BAS is due. Because they look like ordinary cash, they get used for ordinary costs, especially in busy or tight periods. Nothing feels wrong until the bill arrives.
The separate tax account
Open a dedicated business account, used only for tax and super obligations. Every week, transfer into it:
- GST collected from customer payments.
- PAYG withholding from each pay run.
- Super, which from 1 July 2026 is paid with each pay run under Payday Super.
- A regular amount for PAYG instalments or expected income tax.
Pay your BAS, super and tax from this account, never from your operating account.
Working out how much to move
GST. For a GST-registered business, the GST included in a GST-inclusive sale is one eleventh of the total. On a $1,100 payment that includes GST, $100 is GST. Your actual GST payable is GST collected minus GST credits on your purchases, so moving the full GST collected gives you a buffer; reconcile it when you prepare the BAS.
PAYG withholding. Your payroll system calculates the amount withheld each pay run. Move that exact amount.
Super. Move each pay run’s super guarantee amount, ready to pay within the Payday Super timeframe.
Income tax and PAYG instalments. Ask your accountant for an estimate and move a regular weekly or monthly amount.
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Make it automatic
The habit sticks when it is automatic. Options include:
- A weekly scheduled transfer of a fixed percentage of the previous week’s deposits.
- Using accounting software reports to calculate GST collected each week and transferring that amount.
- A payroll process that moves PAYG withholding and super as part of each pay run.
A rough percentage moved every week is far better than a precise calculation done occasionally.
Check against your BAS estimate
Each month, compare the tax account balance with what your accounting software says you will owe at the next BAS. If the account is short, top it up. If it is consistently over, you may be able to reduce the percentage slightly or keep the surplus as a buffer.
Payday Super changes the rhythm
Before Payday Super, many employers held super until the quarterly due date. From 1 July 2026, super must be paid at the same time as wages, so it leaves the account far more often. Moving super into the tax account with each pay run, then paying it promptly, keeps everything aligned. See our guide to Payday Super and cash flow.
What if the tax money is already gone?
If you are reading this with a BAS due and nothing set aside:
- Lodge on time anyway. Lodging keeps penalties down and keeps options open.
- Talk to the ATO or your tax agent about a payment plan if needed.
- Compare a payment plan with funding on total cost; see ATO payment plan or business loan.
- Start the set-aside habit immediately, so the next BAS is covered.
See also ATO tax bill funding.
Why this matters beyond the BAS
Unpaid PAYG withholding, GST and super can expose company directors personally through director penalty notices. ATO debt can be disclosed to credit reporting bodies in some circumstances, affecting borrowing and supplier terms. And ATO interest charges are no longer tax deductible for income years starting on or after 1 July 2025. A simple set-aside habit protects against all of these.
Common objections
“I cannot afford to set money aside.” The money was never yours to spend. Setting it aside simply shows the real cash position earlier, which is better than discovering it at BAS time.
“My income is too irregular.” A percentage of each deposit automatically scales with income.
“My bookkeeper handles tax.” They calculate it; the set-aside habit makes sure the cash is there to pay it.
Cash accounting versus accrual
Some small businesses account for GST on a cash basis, reporting GST when customers pay, while others use accruals, reporting GST when invoices are issued. Under accruals, GST can be payable on invoices your customers have not yet paid, which makes a separate tax account even more important. Check which method your business uses with your accountant, and make sure your set-aside routine matches it.
Sole traders and income tax
Sole traders pay income tax personally on business profit, and many are caught out by a large bill after their first profitable year, sometimes followed by PAYG instalments for the following year. Setting aside a regular amount towards income tax from day one avoids that shock. Your accountant can estimate a sensible percentage based on expected profit. Treat it as part of the tax account, not as savings you can dip into.
Using the tax account with a lender
A separate tax account that is consistently topped up looks good in your bank statements. It shows a lender that tax obligations are under control, which removes one of the biggest worries in any cash flow assessment. If you are applying for funding, mention the account and consider sharing it alongside your operating account so the lender can see the habit in action.
An illustrative example
An illustrative online retailer kept facing BAS bills it could not cover after strong quarters. It opened a separate account and set up an automatic weekly transfer equal to one eleventh of the previous week’s sales, plus the PAYG withholding and super from each pay run. By the next BAS, the account held slightly more than the amount due, and for the first time in two years the business paid on time without borrowing.
Get on the front foot
If tax is already owed, we can help you work out whether funding or a payment plan makes more sense, while you build the set-aside habit for the future. There is no credit check to enquire, your details are not passed to a host of lenders, and a real person reads every enquiry. Apply now.
Frequently asked questions
How much GST should I set aside from each sale?
For a GST-registered business charging GST on a sale, the GST component is one eleventh of the GST-inclusive amount. Your net GST payable depends on credits for GST you paid on purchases.
Should I set aside income tax too?
Yes, if you are likely to have income tax to pay. A regular amount based on your accountant's estimate prevents a large bill after year end.
What if I have already spent the GST?
Lodge on time, contact the ATO about a payment plan if needed, and start the set-aside habit now so it does not happen again.
Is a separate account really necessary?
It makes the habit much easier. Money in your everyday account tends to get spent; a separate account keeps tax money visible and protected.
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