BAS and GST debt

1. 01The real position becomes unknown, to you as much as to anyone else. Decisions get made on a number nobody has verified.
2. 02The ATO has mechanisms to determine an amount where statements are missing, and an estimated liability is not usually kinder than the real one.
3. 03Failure to lodge on time can attract penalties in addition to the interest already running on the balance.
4. 04Payment arrangements become harder to obtain, because there is no agreed figure to arrange payment of.
5. 05Certain director exposures move into their stricter form where statements were not lodged within the required time.
6. 06Finance stalls. No lender approves a file where the tax position cannot be established.

The fix is unglamorous and it works. Give your accountant everything, let them lodge every outstanding period, and accept that the resulting number will be uncomfortable for about a week. Then it becomes a problem with a size, and problems with a size can be funded.

Every invoice you issue with GST on it collects an amount that was never revenue. It sat in the trading account looking exactly like working capital, and it got spent on materials, wages and rent because it was there.

This is not a lecture. It happens to competent operators in profitable businesses, and it usually happens during growth, when the invoices are larger and the gap between paying suppliers and being paid is at its widest. It is a timing failure, not a character failure.

Why it changes the funding answer

It matters here for one practical reason. Because GST is collected rather than earned, the ATO treats it differently to an income tax debt, and so do lenders. A business with a GST shortfall is usually a business with a cash conversion problem, and the funding answer often needs to address both: clear the balance, and fix the gap that created it.

1. 01

   Get the records into one place

   Bank statements, invoices, purchase records and the file for every unlodged period. Incomplete is fine to start with. Missing entirely is not.

2. 02

   Engage a registered tax agent

   If you do not currently have one, this is the moment. A registered agent can see the account, has lodgement channels available to them, and knows how to sequence catch-up lodgements.

3. 03

   Lodge everything outstanding

   All of it, oldest first, until the account reflects reality. Expect the total to be larger than your estimate. It usually is, and it is better known than guessed.

4. 04

   Establish the true balance

   Pull the integrated client account statement once the lodgements have processed. That figure, not the one in your head, is what any arrangement or any loan gets built on.

5. 05

   Decide arrangement or finance, or both

   With a verified number, the choice becomes real. A plan where cash flow supports it. Finance where it does not. Sometimes finance clears part of it and an arrangement covers the rest.

Order of lodgement

Oldest period first

Who lodges

A registered tax agent

The figure that counts

The account statement

Usual long pole

Finding the records

Bring us in at

Step two, not step five

Run in parallel

Lodgement and finance

Bring us in during step two rather than after step five. Building the finance file in parallel with the lodgement work usually saves several weeks, and it means the funding is ready the week the number is confirmed.

Once a BAS liability is lodged and unpaid, the general interest charge starts running on the account. It compounds daily, the rate is set quarterly by the ATO, and it is published on ato.gov.au rather than quoted by brokers.

The last row is the one that decides most files. A carried BAS balance does not stay one quarter’s problem. It joins the next quarter’s, and the two compound as a single amount.

Where a BAS balance keeps recurring, the answer is rarely a bigger loan. It is usually invoice finance or a working capital facility that closes the gap between doing the work and being paid for it, with a one-off refinance clearing what has already built up.

• The integrated client account statement or a portal printout showing the current balance.
• The last several BAS lodgements, which double as evidence of turnover between financial years.
• Two years of financial statements and tax returns where they exist, business and personal.
• Six months of business bank statements, which is where an assessor looks for dishonours and for the real cash cycle.
• Any ATO correspondence, including arrangement letters and notices. Send it even when it is unflattering.
• Trust deed and amendments where a trust is involved, plus an ASIC extract for a company.
• Details of any security property, including mortgage statements and the rates notice.

Every business we work with that has fixed this permanently did roughly the same four things. None of them are complicated.

1. 01Move GST and PAYG withholding into a separate account weekly, at the same time as payroll. Not monthly, not at quarter end. Weekly.
2. 02Reconcile monthly rather than at quarter end, so the BAS is a printout instead of an investigation.
3. 03Review pay-as-you-go instalments with your tax agent whenever the business grows materially. An instalment rate set against a smaller year is a shortfall waiting to be discovered.
4. 04Diarise a position review two weeks before each quarter falls due, with your accountant and your broker. If funding is needed, two weeks is enough time. Two days is not.

Here is the honest number.