How to Prepare BAS in Xero: Complete Australian Guide

Preparing your BAS in Xero starts well before you open the Activity Statement report. First, reconcile every bank transaction, verify the GST code assigned to each one, and review any outstanding invoices. Only then should you run the Activity Statement, cross-check each field against your GST Reconciliation report, and lodge either through Xero's Standard Business Reporting (SBR) connection or directly via the ATO portal.

For most Australian small businesses, BAS preparation is not a one-off task. It is a recurring compliance obligation, due quarterly or monthly, where accuracy matters. Report the wrong figures and the Australian Taxation Office will apply penalties and interest charges that compound quickly. According to the Australian Small Business and Family Enterprise Ombudsman, 39% of Australian small businesses spend more than six hours each week navigating regulatory red tape, with total Commonwealth compliance costs reaching $160 billion annually, nearly 6% of GDP. BAS lodgement sits at the centre of that burden.

This Xero BAS guide for Australia walks through the complete workflow: understanding what each BAS field represents, running pre-BAS data quality checks inside Xero, preparing and reviewing the BAS report itself, recognising common mistakes that trigger ATO penalties, lodging online, and reconciling your accounts after lodgement. Whether you are learning how to prepare BAS in Xero for the first time or tightening up a process that has produced errors before, every step here is designed to improve the accuracy of your figures.

The focus throughout is on the preparation and review process rather than button-by-button software navigation. Getting the data right before you lodge is what separates a clean BAS from one that attracts ATO scrutiny.

What Is a BAS and Who Needs to Lodge One?

A Business Activity Statement (BAS) is a form you submit to the Australian Taxation Office (ATO) to report and pay several tax obligations. The most common items reported on a BAS are:

Goods and Services Tax (GST) collected and paid
PAYG withholding: tax withheld from payments to employees and other payees
PAYG instalments: prepayments toward your own income tax liability
Fringe benefits tax (FBT) instalments, where applicable

For most small businesses, the BAS primarily covers GST and PAYG withholding. The other fields only apply if the ATO has specifically registered you for those obligations.

Who Must Lodge a BAS?

You are required to lodge a BAS if your business is registered for GST. GST registration is mandatory once your annual GST turnover reaches $75,000 (or $150,000 for non-profit organisations). This obligation applies regardless of your business structure: sole traders, partnerships, companies, and trusts with an active Australian Business Number (ABN) and GST registration must all lodge.

Businesses under the $75,000 threshold that have voluntarily registered for GST are also required to lodge a BAS for every reporting period.

Lodgement Frequency and BAS Lodgement Deadlines Australia

Your reporting cycle depends on your turnover and, in some cases, your preference:

Frequency	Who it applies to	Due date
Quarterly (default)	Most small businesses with GST turnover under $20 million	28 days after the quarter ends (except the Oct-Dec quarter, which is due 28 February)
Monthly	Businesses with GST turnover of $20 million or more	The 21st of the following month
Annual	Businesses under $75,000 turnover that voluntarily registered for GST	As specified on your BAS or activity statement

Quarterly lodgement is the default for most small businesses. Some businesses below the $20 million threshold voluntarily opt for monthly BAS lodgement because it provides better cash flow visibility, avoids larger quarterly bills, and catches data entry errors earlier. Voluntary monthly lodgement can be particularly useful for seasonal businesses or those approaching the $20 million threshold.

The BAS Agent Advantage

If you use a registered BAS agent (registered with the Tax Practitioners Board), you typically receive extended lodgement deadlines compared to self-lodgers. This extra time can reduce pressure around reporting periods and give your agent room to review your data thoroughly before submission.

Whether you lodge yourself or through an agent, the next step is understanding exactly which BAS fields apply to your business and what each label means.

Understanding Key BAS Fields

BAS field labels like G1, 1A, and W1 look cryptic on the form, but each one maps to a specific category of business income, expenditure, or tax. Knowing what feeds each field helps you spot errors before they reach the ATO.

GST Fields

G1 - Total sales. This captures all sales and income your business earned during the period, including both taxable and GST-free sales. Every sales invoice you issue in Xero contributes to this figure.

G2 - Export sales. Sales made to overseas buyers, which are GST-free. If you sell services or goods to customers outside Australia, those amounts appear here separately from your domestic sales.

G3 - Other GST-free sales. Domestic sales that are GST-free by category rather than by destination. Examples include basic food, medical services, and educational courses. These reduce the taxable portion of G1.

G10 - Capital purchases. Purchases of business assets during the period, such as vehicles, equipment, or machinery. Xero distinguishes these from everyday expenses because capital items have different depreciation and GST treatment.

G11 - Non-capital purchases. All other business purchases that are not capital assets: office supplies, rent, utilities, professional services, and similar operating costs.

1A - GST on sales. The total GST you collected on taxable sales. This is 10% of the taxable portion of G1 (after excluding G2 and G3 amounts). This is the GST you owe to the ATO.

1B - GST on purchases. The total GST you paid on business purchases that you can claim back as input tax credits. This figure is derived from your G10 and G11 purchase transactions that included GST.

The difference between 1A and 1B determines whether you owe the ATO or receive a refund for the period.

PAYG Withholding Fields

If your business has employees or withholds tax from contractor payments, PAYG withholding BAS fields apply to you.

W1 - Total salary, wages, and other payments. The gross amount you paid to employees and any contractors where tax was withheld during the period. In Xero, this is populated directly from your payroll data.

W2 - Amounts withheld from W1. The actual tax withheld from those payments. This is the amount you must remit to the ATO on behalf of your workers.

W3, W4, and W5 cover less common withholding categories. W3 applies to withholding from investment distributions, W4 covers payments under voluntary agreements, and W5 relates to payments to foreign residents departing Australia. Most small businesses only need W1 and W2.

PAYG Instalments

If your business pays income tax in quarterly instalments, you will also see T1 (instalment income for the period) and T2 (instalment amount to pay). The ATO either provides a fixed instalment amount or a rate to apply against T1. Not all businesses are required to pay PAYG instalments - the ATO notifies you if this applies.

Where These Numbers Come From in Xero

Every BAS field in Xero is populated from your underlying transaction data rather than entered manually. Sales invoices and receipts feed G1 and 1A. Purchase bills and expense transactions feed 1B, G10, and G11. Payroll runs feed W1 and W2. The tax rates assigned to each transaction line determine which GST field it falls into.

This means the accuracy of every BAS field depends entirely on the accuracy of your coded transactions, tax rate selections, and payroll records. A single invoice coded to the wrong tax rate will flow through to the wrong BAS field. Before you run the BAS report in Xero, you need to verify that the underlying data is correct - which is exactly what the pre-BAS checklist covers next.

Pre-BAS Checklist: Data Quality Checks in Xero

Running a BAS report on unverified data is the single most common source of lodgement errors. The principle is straightforward: if the underlying transactions in Xero are miscoded, missing, or unreconciled, the BAS figures will be wrong. No amount of review at the report stage can fix data quality problems that exist at the transaction level.

Complete every check below before generating your BAS report. This is your BAS preparation checklist in Xero, and it is the step most guides skip entirely.

1. Reconcile all bank transactions

Every bank transaction for the BAS period must be reconciled in Xero. Unreconciled transactions do not appear in BAS calculations. Open the Bank Accounts summary and confirm zero unreconciled items for each account across the entire period. If you have outstanding items, work through them now. For guidance on importing and reconciling bank statements in Xero, address any feed gaps or manual upload issues before proceeding.

2. Verify GST codes on every transaction

This is where most BAS errors originate. Run Xero's GST Audit Report or pull an Account Transactions report filtered to the BAS period. You are looking for transactions coded to the wrong GST rate (a taxable purchase coded as GST-Free, an input-taxed financial service coded as taxable, or a capital item with no GST claimed at all).

Common problem areas for incorrect GST codes in Xero:

Mixed-use expenses: items used partly for business, partly for private purposes
Capital purchases: equipment, vehicles, and fit-outs above $1,000
Insurance premiums: some components attract GST, others do not
Financial services: bank fees, interest, and merchant charges are typically input-taxed

Check each flagged transaction against the original tax invoice. If a valid tax invoice does not exist, you cannot claim the GST credit regardless of the code applied in Xero.

3. Review outstanding invoices

Check for draft invoices that should have been approved and approved invoices dated within the BAS period that have not been sent. Both scenarios affect your GST calculations. A draft invoice sitting in Xero will not flow into your BAS, which means you may underreport GST collected on sales. Ensuring accurate invoice data entry in Xero at the point of capture prevents these gaps from accumulating across the quarter.

4. Clear suspense and unallocated accounts

Any transactions sitting in suspense accounts or the "Ask My Accountant" holding account need to be coded to the correct account with the correct GST classification. These transactions are effectively invisible to the BAS until they are properly allocated. Filter your trial balance for these accounts and resolve every item dated within the BAS period.

5. Reconcile payroll to PAYG withholding

If you process payroll through Xero, verify that the figures feeding into your W1 (total gross wages) and W2 (total tax withheld) fields are accurate. Run a Payroll Activity Summary for the BAS period and cross-check the totals against what appears in your BAS draft. Discrepancies here typically result from manual payroll adjustments, mid-period employee start or termination dates, or amended pay runs. For a detailed walkthrough of reconciling payroll records, address any variances before finalising the BAS.

A note on transaction volume

For businesses processing hundreds of transactions per month, this checklist becomes a multi-day exercise if data entry has been inconsistent throughout the period. The real efficiency gain comes from coding transactions correctly at the point of capture, when invoices are entered and bank feeds are reconciled daily or weekly, not in a batch the week before the BAS deadline. Consistent data hygiene during the quarter turns this checklist into a 30-minute verification rather than an excavation project.

Once every check above passes cleanly, your data is reliable and you are ready to generate the BAS report in Xero.

How to Prepare and Review Your BAS in Xero

With your pre-BAS checks complete, you can now generate the actual Activity Statement and verify every field before lodgement.

To access the report, navigate to Accounting > Reports > Activity Statement in Xero. You can also search for "Activity Statement" in the reports menu. Select the BAS period you are preparing (quarterly or monthly, depending on your reporting cycle). Xero will generate a pre-filled statement based on the transactions recorded for that period.

The review process works through each section of the report systematically.

GST Section (G1, 1A, 1B)

Start with G1 (Total Sales), then review 1A (GST collected on sales) and 1B (GST paid on purchases). Open the GST Reconciliation report for the same period. This report breaks down every transaction by its GST classification, making it straightforward to trace discrepancies back to their source.

If G1 does not match your expected total sales figure, the most likely causes are miscoded transactions or invoices that were not recorded in the correct period. Click into the GST Reconciliation line items to identify which transactions are pulling the figure off target.

Capital vs Non-Capital Purchases (G10, G11)

Check that asset purchases appear under G10 (Capital Acquisitions) rather than G11. A common oversight is coding new equipment, vehicles, or other capital items to G11 (Non-Capital Acquisitions) instead of G10. While the total GST credit remains the same either way, incorrect classification can trigger ATO queries and creates problems if you are ever audited.

PAYG Withholding (W1, W2)

Cross-check W1 (Total salary, wages, and other payments) and W2 (Amount withheld from payments) against the Payroll Activity Summary for the same period. Any discrepancy between the BAS W1/W2 figures and the payroll report indicates a data entry problem. Perhaps a pay run was processed to the wrong period, or a manual adjustment was entered incorrectly. Resolve these differences before lodging.

The Review-and-Adjust Cycle

If any section shows a discrepancy, go back to the source transactions. Correct the GST codes or account allocations, then re-run the Activity Statement to confirm the figures now reconcile. Do not lodge a BAS with unresolved discrepancies. Even minor ones can compound over multiple quarters and attract ATO attention.

Xero allows you to save a draft Activity Statement and return to it later, which is useful when corrections require input from a client, supplier, or payroll officer.

Once every field is verified and the figures reconcile cleanly, your BAS is ready for lodgement. Before you submit, though, it is worth understanding the most common BAS mistakes that trigger ATO penalties, and how to avoid them.

Common BAS Mistakes and How to Avoid ATO Penalties

BAS errors cost Australian businesses thousands of dollars each year in penalties, interest charges, and revision fees. Most of these errors are preventable. Below are the five most frequent mistakes and how to guard against each one.

1. Incorrect GST Classification

Coding a GST-free purchase as taxable overstates your GST credits, while coding a taxable purchase as GST-free understates them. Both trigger ATO attention. The categories where this happens most often are:

Insurance premiums and financial services: these are input-taxed, not GST-free and not taxable
Basic food items: GST-free, but prepared food and beverages are taxable
Medical services and education: GST-free, but related products or ancillary services may carry GST

In Xero, check the tax rate assigned to each line item rather than relying on the default account code. A single misclassified supplier can compound across every transaction in the quarter.

2. Missing Capital Acquisitions at G10

Capital purchases (equipment, vehicles, property, and other assets above your capitalisation threshold) must be separately reported at label G10 on the BAS. The ATO uses G10 data for compliance profiling, and omitting it flags your return for review even when the total GST amount is correct.

When recording a capital purchase in Xero, assign it to a fixed asset account with the correct tax rate. Before lodging, run the GST Audit Report filtered by asset accounts and verify those amounts appear at G10 in the Activity Statement.

3. PAYG Withholding Errors

A mismatch between the tax withheld amount on your BAS and what the ATO receives through Single Touch Payroll (STP) creates an immediate discrepancy in their systems. Common causes include:

Entering a rounded figure instead of the exact withholding amount from your payroll summary
Forgetting to include amounts withheld from contractors under voluntary withholding agreements
Running a pay cycle after generating the BAS report but before the quarter closes

Cross-reference label W1 (total salary and wages) and W2 (amounts withheld) against your STP submission for the same period. In Xero, the Payroll Activity Summary report provides these figures.

4. Not Reconciling Bank Transactions Before Lodging

Submitting a BAS based on incomplete data is one of the most common mistakes and one of the most preventable. If bank feeds have unreconciled transactions at the time you generate the BAS report, those amounts are excluded from the calculations entirely. End-of-quarter payments that clear a day or two late are a frequent culprit. Complete your bank reconciliation for every linked account before you generate the BAS, and check the Bank Reconciliation Summary report in Xero to confirm the closing balance matches each bank statement to the cent.

5. Claiming GST Without a Valid Tax Invoice

For any purchase over $82.50 (including GST), you must hold a valid tax invoice to claim the GST credit. A standard receipt is not sufficient. A valid tax invoice must include the supplier's ABN, the word "tax invoice", the GST amount or a statement that the total price includes GST, and a description of the goods or services supplied. Understanding the difference between invoices and receipts prevents you from assuming a payment confirmation qualifies as a tax invoice. If you cannot obtain a valid tax invoice from a supplier, you cannot claim the GST credit on that purchase.

The ATO Penalty Framework

Late lodgement attracts a penalty of $313 for each 28-day period (or part thereof) that the BAS remains outstanding, up to a maximum of five penalty units. The clock starts the day after the due date. Repeated late lodgements increase ATO scrutiny and may result in higher penalty tiers.

For false or misleading statements on the BAS, such as overclaimed GST credits or understated PAYG withholding, the ATO calculates penalties as a percentage of the shortfall amount. The percentage depends on whether the error was a reasonable mistake, a failure to take reasonable care, or recklessness.

The ATO can remit penalties where a genuine error occurred and you have a clean lodgement history. However, consistent mistakes or a pattern of under-reporting will attract audit activity rather than leniency.

Once you have verified your BAS against these common errors and confirmed the figures are accurate, the next step is lodging it with the ATO.

Lodging Your BAS Online

Once your BAS figures are reviewed and verified, the next step is lodgement. You have three options, each with different deadline implications.

1. Directly Through Xero via Standard Business Reporting (SBR)

Xero connects to the ATO through the Standard Business Reporting (SBR) channel, letting you lodge your BAS without leaving the software. Because the figures flow directly from the same system where you prepared them, there is no manual re-entry of numbers and no risk of transcription errors between platforms.

To use SBR lodgement, your business must have its ABN linked to Xero and you must have authorised Xero as an SBR-enabled software provider with the ATO. If you have not set this up, you will find the authorisation options under your organisation's ATO connection settings in Xero.

2. Via the ATO Business Portal or myGov

If you prefer to lodge outside Xero, you can log into the ATO Business Portal (for businesses) or myGov (for sole traders with a linked ATO account). From there, manually enter or verify the figures from Xero's Activity Statement report.

This method requires transferring numbers between systems, so double-check every field against your Xero report before submitting. Even a single transposed digit can trigger an ATO discrepancy notice.

3. Through a Registered BAS Agent

A registered BAS agent can prepare and lodge your BAS on your behalf. BAS agents are registered with the Tax Practitioners Board, which maintains a public register of authorised practitioners you can search to verify credentials.

The key advantage of using a BAS agent is access to extended lodgement deadlines. The ATO provides BAS agents with a schedule of due dates that typically fall four to six weeks beyond the standard deadline. For businesses that routinely need more preparation time, or those with complex reporting requirements, this additional window can be the difference between a considered lodgement and a rushed one.

Deadline Considerations

If you self-lodge, whether through Xero SBR, the Business Portal, or myGov, standard deadlines apply: 28 days after the end of each quarter. Only lodgement through a registered BAS agent qualifies for the extended due dates.

Regardless of method, Xero SBR is the most efficient path, but only if the underlying data has been verified through the pre-BAS checks and review process covered earlier.

After lodgement, there is one final step: reconciling the BAS in Xero to ensure your records stay accurate going forward.

Post-Lodgement Reconciliation in Xero

Lodging your BAS is not the final step. Until you reconcile the lodgement in Xero, your accounts carry an unrecorded liability (or refund) with the ATO. Skip this and your BAS liability account will be wrong, meaning the next BAS period starts with incorrect opening balances. Every figure flowing into future Activity Statements will be off from the outset.

BAS reconciliation in Xero closes the loop between what you reported to the ATO and what your accounting records reflect. Here is the process in three steps.

1. Finalise the Activity Statement in Xero

Once the ATO has accepted your lodgement, return to Xero and mark the Activity Statement as Filed. This action locks the BAS period so no further transactions can alter its figures. It also moves the calculated GST and PAYG amounts into your ATO liability accounts, typically the GST and PAYG Withholding Payable accounts in your chart of accounts.

Do this regardless of how you lodged. Whether you submitted through the ATO portal, your tax agent, or Xero's direct lodgement feature, the Activity Statement in Xero still needs to be marked as filed separately.

2. Record the ATO Payment or Refund

When you pay the BAS amount owing to the ATO, record that payment against the ATO liability account and match it to the correct BAS period. The recording method depends on how you pay:

Direct debit or bank transfer: The payment will appear in your bank feed. Reconcile it as a payment to the ATO liability account (for GST, PAYG withholding, or both, depending on what your BAS covers).
BPAY or other manual payment: Create a spend transaction allocated to the relevant ATO liability account, then match it to the bank feed entry when it clears.
ATO refund: If you are owed a refund, record the incoming amount as a receive transaction against the ATO liability account once it appears in your bank feed.

3. Verify the ATO Liability Account Balance

After recording the payment or refund, check the ATO liability account balance for that BAS period. It should be zero. If you are paying in instalments under an ATO payment plan, the balance should reflect the remaining amount owed, nothing more, nothing less.

A non-zero balance after full payment signals a discrepancy. Common causes include transactions coded to the wrong tax rate, bank feed entries matched to the wrong account, or timing differences between Xero's BAS calculation and the amount you actually paid. Investigate and resolve these before the next BAS period begins.

Handling ATO Amendments

If the ATO issues an amended assessment (adjusting your BAS figures after review), you will need to record the adjustment in Xero. Create a manual journal entry to account for the difference between your original lodged amount and the ATO's revised figure, then reconcile any additional payment or refund that results.

Completing this reconciliation after every BAS period closes the full cycle from preparation through to payment. When you repeat this process consistently each quarter (or month), your financial records stay accurate and each new BAS period begins with a clean starting position. The final section pulls everything together into a repeatable action plan.

Your BAS Preparation Action Plan

Use this checklist as your go-to reference each BAS period. Working through these steps in order ensures nothing is missed and your lodgement figures are accurate.

Reconcile all bank transactions for the BAS period. Clear every unreconciled item so your accounts reflect actual cash movements.
Audit GST codes across all transactions. Pay close attention to mixed-classification areas such as motor vehicle expenses, entertainment, and items with partial GST credits.
Review outstanding and draft invoices. Confirm each invoice is approved, correctly dated within the period, and allocated to the right GST code.
Clear any suspense or unallocated accounts. Every dollar sitting in these accounts is a potential misstatement on your BAS.
Reconcile payroll totals against W1 and W2 figures. Match gross wages and PAYG withholding amounts to your payroll reports so these fields are accurate before you generate the Activity Statement.
Run the Activity Statement report in Xero and cross-check each field against the GST Reconciliation report. Verify that 1A, 1B, and the calculated net GST amount align between reports.
Correct any discrepancies and re-run the report until every figure is verified. Do not lodge until the two reports agree.
Lodge through Xero's SBR connection, the ATO Business Portal, or your registered BAS agent before the applicable deadline.
Mark the Activity Statement as Filed in Xero and record the ATO payment or refund against the correct liability account.
Verify the ATO liability account balance is zero for that period. A remaining balance signals a recording error that needs correction before the next quarter.

This workflow becomes noticeably faster with repetition. The biggest time savings come not from the review stage itself, but from maintaining consistent, accurate data entry practices throughout the quarter. When transactions are coded correctly as they occur, the pre-lodgement review is a confirmation step rather than a correction exercise.

Consistent quarterly BAS preparation, following this Xero BAS guide for Australia, builds a reliable financial record over time. That record reduces your audit risk, strengthens your position if the ATO raises queries, and gives you a clearer, more current picture of your tax obligations and cash flow across every reporting period.