Three Bank Accounts Can Keep Your Tax Bills Under Control

With multiple obligations hitting at different times—BAS, PAYG instalments, payroll tax, super, and annual income tax—it can feel like money is constantly leaving your account. This episode cuts through that confusion and explains why it often comes down to a lack of structure, visibility, and preparation.

Mai walks through how the tax system actually works, including the difference between your income tax account and your activity statement account, and why PAYG instalments often catch business owners off guard. By understanding how these obligations are calculated and when they fall due, the pressure quickly becomes more manageable.

The episode also focuses on practical systems business owners can implement immediately to stay in control, without the stress of scrambling for cash each quarter.

In this episode, Mai talks about:

• The difference between your income tax account and activity statement account
• How PAYG instalments work as a prepayment of your annual tax liability
• The importance of setting up a dedicated tax account to manage obligations
• How to structure three key accounts: trading, tax, and cash reserves
• Why setting aside GST, company tax and super reserves is critical
• How a simple weekly or recurring transfer system can remove end-of-quarter stress
• Why reviewing your profit and loss regularly improves visibility and control

This episode is a reminder that paying tax is often a sign your business is performing, but without the right systems in place, it can quickly feel overwhelming. 

If you’d like help setting this up for your business or understanding your tax obligations, reach out to our team at www.myaccountingadvantage.com.au. You can also submit questions or topic ideas via the Ask Mai link at the top of the show notes.

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Disclaimer

The advice contained in this presentation is general in nature only and should not be acted on without first seeking professional advice.

Your personal circumstances have not been taken into account, and you should consider the appropriateness of the advice to your individual needs.

Transcript

Timing Problem, Not Tax Problem

Speaker 0:04

Hello and welcome back to the podcast My Accounting Advantage. Joining me is Mai Harris for a very important episode. You don't have a tax problem, you have a timing problem. Mai, welcome back. Thank you, Lee. And it's a very good topic for business owners. This is my own personal problem. This one. I see all these taxes coming in. I gotta pay this one and this one, but I forget they're from entities. Take us into the program.

Speaker 1 0:32

Yes. So a lot of business owners and you know, even just investors who do receive investments income during the financial year, because they're getting taxed on, say, in investment income. They have top-up tax. The top-up tax uh being placed on them every quarter. So that's when they lodge the instalment activity statement. And they do pay the top-up tax every quarter. And also they will be paying extra tax when they do lodge their annual tax return. So it all gets a little bit messy and confusing when taxes are coming at you from every direction, especially if you are business owners, you have the tax obligation of, you know, lodging payroll tax. You lodge your quarterly BAS. And in some cases, you lodge monthly BAS. And then on top of that, you lodge an annual tax return. So, there's all these taxes coming at you. Yeah. And all of a sudden, we get so many calls and so many emails every at the end of each quarter when the correspondence start shooting out from the tax office to them and they're like, I just paid for this. There's another one, and there's another one. What's going on? Why am I paying so much tax? So people need to understand different types of taxes out there and the rhythm. Set up the right system to tackle those taxes so that you actually understand what's coming up next. And they 're all different types of taxes that you are you you will you you need to pay and be prepared for it.

Speaker 2:25

So let's discuss this because

Why Tax Notices Multiply Fast

Speaker 2:28

over the years that I've been in business, I've made many mistakes on this one. And I've been caught off guard and I've had to find a lot of money because I wasn't putting it aside into an account. Today I run a 90-day reporting system. So I just go back 90 days and I look at money in, money out, and what tax is owing. And it gives me that guide that, okay, that's where it is, that's what it is, and I now put it aside after being smashed in the past. What

The Three-Account Money Setup

Speaker 3:00

should people be doing?

Speaker 1 3:01

Okay, so the if you're a business owner, so um you really should have separate tax account set up. So what I mean by tax account is you have your normal business operating account that you uh, you know, receive all your income in and then your expense goes out of that account, that's fine. But you should really have a separate account set up for your tax, I call it tax account. So that's where you actually extract a portion of your income every time it comes in and transfer it over to your tax account. So that way you have sufficient reserves to tackle your tax bills. So and you're not scrambling at the end of each quarter to pay for your GST and your PAYG instalments. Also, now you have to think about super because Payday Super is coming up and it's coming up quick. So Payday Super will be a thing that you pay from the 1st of July 2026. Yeah, you really need to have that reserves to pay the super as soon as you run your payroll. So you should also have now, I would suggest, you know, have a cash reserves account. So there should be three accounts. Number one is your everyday account, your trading account. Number two is your tax account where you park all your taxes in there. And then number three is your reserves. So that, you know, for rainy day, for example, and what should be in your reserve account is if you can, at least two weeks of cost of your operating expenses. Like, for example, um, you should have a look at um what are your monthly operating costs, and then say the total is about $25,000 each month, or and so you should at least half that in your reserves so that you have, you know, operating costs for you, you can afford to pay for that, and then you're not really scrambling and taking money out of the tax account, for example. So and and when the tax comes, you'll be short. It's about um being prepared for um different taxes at different time that you're going to have to pay for.

Speaker 5:29

Mai, would it be a good practice to sit with yourself, understand a guide to how much tax you'll be paying each quarter and so forth, and then set up a recurring payment out of the general account to the tax account weekly.

Speaker 1 5:50

That would be awesome if you can do that. So yeah, I mean it's it takes discipline, right? And um it's and takes sequencing as well. So you need to understand what comes in, what goes out, and if you don't know, you can get lost pretty easily. Oh, I always want to sit with my clients and make sure that they understand the different types of taxes so they don't feel overwhelmed and they don't feel like they're

Income Tax Vs Activity Statement

Speaker 1 6:15

paying too much tax because they need to understand that annually their income tax obligation. The income tax obligation is an account, okay? Like you have that. So um under basically when you are taxpayer, there's one account called income tax account, and then the other account called activity statement account. So they are different. The tax account is typically for your annual income tax. So you lodge your tax return annually and you're being you know assessed on an annual basis when you lodge a tax return. If there is a you know top-up tax that you need to make, it goes into that account. And that happens once a year. And if you get a refund, it goes into that account too, and it you'll be refunded. Now, with the activity statement account is the secondary account, and typically is it's applicable to people who have a business. Um, if you have a company, you do have that, and you have a business under you know different structure, you do have two accounts. It's income tax account and activity statement account. What you'll see in the activity statement account is your quarterly tax obligations that will go into there. And what are your um quarterly tax obligations? So it's your BAS, your business activity statement. So you'll report GST, you'll report PAYG withholding, and then uh you if you subject to FBT, it's FBT, and then your PAYG instalments. So that is the prepay tax. So why people are just so confused with you know PAYG instalment is that they they go, well, I've paid income tax, but then I'm paying PAYG instalments every quarter. What's the go? And yes, it is very confusing.

PAYG Instalments Made Simple

Speaker 1 8:20

So the PAYG instalment is a prepaid tax. So what the ATO does is every time you lodge your annual income tax return, they grab that information and they will apply your previous year tax liability to the next financial year. For example, you've lodged your 2025 uh financial year tax return and you've paid $20,000 in tax. So in 2026, the ATO instantly think, yep, he's going to make this the same amount of money and ha and has the same um tax um obligation of $20,000. So I'm going to break it down into a quarterly PAYG instalment amount. So that's $5,000 every quarter. So then the taxpayer will receive instalment payment notice of $5,000 every quarter. Yes, it is prepaid tax. So why do they do that? It's because they want you to keep prepaying your tax. It's the same principle as if you earn wages, you um pay tax on wages. So yeah, so that's what they want. They want you to prepay tax so that you're not going to be lump with a um lump sum at the end, and then you can't afford it.

Speaker 9:58

And then people are liquidating, the whole thing happens. So the real issue is no system, because there was no visibility, no separation, no preparation. And this is where everyone feels overwhelmed. And I think this is a great episode today for people to take that action. You need three accounts. Set up the instalment program so there is no big issue at the end. And I see this with sales people who get big commissions and it's already spent and they didn't give thought to the other part, and you end up in trouble. What else do we need to know about this part of our program?

Speaker 1 10:37

Yeah, so basically it's all about creating the system. A system equals success. So the system needs to be easy, you know. So you need to understand that when you receive your income, like for example, a commission, how much do I need to put away? So if um, you know, you you received

What To Set Aside Each Sale

Speaker 1 11:00

your commission, you um issue an invoice and there's you know GST on it, so you've got to understand that 10% of that needs to go into the tax account. Also, it it depends on um your operating structure. So if you operate under a company, it and it's 25% tax. So pour 25% away. So already it's like 35%, right? If you're self-employed, do put some money away for your super. So really it's about 12%.

Speaker 11:36

Mai, one thing we haven't mentioned on the bright side of this episode is if you are paying a lot of tax, you are generating profit. So as a business owner, a small business owner, it is an indicator that what you do is going well in a world that many businesses are closing down out there. Many businesses are not saleable. And I think that's uh just a little bit of a bright side moment. You must be doing something right if that's going good. What's our wrap-up for today?

Speaker 1 12:07

Yeah, so the wrap-up for today is if you feel overwhelmed by um, you know, what taxes you are paying, get in touch with your advisors and and also ask them to explain, you know, the timing of all the taxes so that you can be well prepared for it. And um, like Lee, we we've talked about, you know, look at the profit and loss on a monthly basis. That will help you if you know how to, you know, look at your profit and loss and understand your profitability position on a monthly basis, then that will really empower you to be well prepared and also it might give you, you know, a bit of a

Monthly P&L And Getting Help

Speaker 1 12:50

smile every um the end of each month because you're doing really well and you're paying paying tax is part of you know living here in Australia, so let's face it. So um, but understanding is much more so that you can be um, you know, you can feel under control and you're not feeling overwhelmed by it at all. So um if you're feeling, you know, that I'm not handling this, you know, taxes very well, well, then you need to have a look at uh the you know the tax obligation that you have, understand them, and also have the right bank account set up. And that would be my number one um suggestion here. And also put money away, especially your you know, GST. You can review that every month and make sure that you have enough cash so that you're not feeling stress. If you need help building the system, get in touch with us. We will help you understand the different types of taxes and also how you should structure your business accounts and um how to also read your financial reports so that you don't feel overwhelmed at the end of tax time.

Speaker 14:14

Mai, a great episode again and again and again. We do have a request of you though.

Speaker 1 14:21

Okay.

Speaker 14:22

A lot of people don't actually know how to read a PL, and I know many business owners who get embarrassed by that and they don't like to say things. Would you do a whiteboard video session for us one week? Yes, of course. I would love to. So, we're gonna arrange that into our future, a whiteboard version of how to read a PL. But Mai, thank you for joining us, and I'll see you next week.

Speaker 1 14:48

Thank you, Lee.