Tax account (builder cashflow discipline)
Tax account is the operational discipline of a separate bank account swept with GST and PAYG on every stage payment. Prevents builder's biggest cashflow failure.
Ask Chalkline about this →A tax account in builder operations is the discipline of holding a separate bank account into which GST collected and PAYG withheld is swept on receipt of each stage payment. The account is at the same bank as the operating account but separate, typically a high-interest savings account so the float earns interest between collection and lodgement. It prevents the single most common builder cashflow failure: using ATO money as operating cash and being short on BAS day. The tax account is not a legal requirement; it’s a self-imposed discipline that pays for itself the first time it’s used.
The problem it solves:
A typical residential builder receives $120,000 stage payment from a client (incl. GST). The cash split is:
| Component | Amount |
|---|---|
| Builder’s revenue (ex-GST) | $109,091 |
| GST collected on behalf of ATO | $10,909 |
| Total payment received | $120,000 |
Without the tax account, the builder sees $120,000 in the operating account and treats it as today’s cash. Three months later, the BAS arrives: $10,909 of GST is due. If the operating account doesn’t have it (because it’s been spent on trades, materials, payroll), the builder is short.
Same problem for PAYG withholding: an employee’s wages of $1,000/week, with $200 withheld for PAYG, mean $200 must be paid to the ATO at the next BAS. Treating that $200 as cash today creates the same shortfall later.
The tax account fix:
- Open a separate savings account at the same bank as the operating account, named “Tax Account” or similar.
- On every stage payment receipt, immediately transfer:
- 1/11 of the gross stage payment (the GST collected).
- PAYG withheld from any payroll run that week.
- At BAS lodgement (quarterly), pay BAS from the tax account.
- The operating account never touches GST or PAYG money.
Why a separate account:
| Account | Money |
|---|---|
| Operating account | Builder’s revenue, trade costs, materials, payroll (net of PAYG), all running costs |
| Tax account | Only GST and PAYG; only spent on BAS or PAYG remittance |
The physical separation is the discipline. It’s psychologically much harder to “borrow” from a separate account than to leave the money in the operating account and intend to set it aside later.
Interest income (a small bonus):
A typical 4-5% p.a. high-interest savings account in 2026, with a tax-account balance averaging $30,000-$60,000 over a quarter (depending on project pipeline), earns the builder $300-$700 per quarter in interest. The interest is taxable but recovers some of the float cost.
What the tax account holds:
| Source | What flows into the tax account |
|---|---|
| GST on stage payments | 1/11 of every progress claim received (where on cash basis) |
| GST on retention release | 1/11 of retention paid when released |
| PAYG withheld from wages | Withheld portion of every payroll run |
| PAYG instalments | Quarterly pre-payments toward annual income tax |
| Superannuation guarantee (sometimes) | Some builders include super here too, especially under Payday Super (7 BD remittance deadline) |
| Workers comp premium (sometimes) | Held against annual renewal |
Why builders skip this:
| Reason | Counter |
|---|---|
| ”I’ll just keep the money in operating; I track it in Xero” | Cash-only tracking fails when revenue dries up |
| ”I need the GST money for cashflow this month” | That’s borrowing from the ATO; quarterly bill catches up |
| ”Banks charge fees on extra accounts” | Modern high-interest savings have no fees |
| ”It’s effort to set up” | One-time setup; pays for itself in the first quarter |
Quarterly BAS payout from the tax account:
When BAS lodgement is due (28 days after quarter end):
- Confirm BAS amount via accounting software or ATO portal.
- Pay BAS from the tax account to the ATO.
- Excess in tax account (if interest earned + slight over-collection): leave for next quarter or sweep to operating.
- Reconcile: tax account balance after payment + interest should approximately match next quarter’s projected liability.
Same logic for PAYG withholding:
PAYG withheld from employee wages is reported and remitted via the BAS (W1 and W2 fields). Same discipline:
- Withhold from gross wages on each pay run.
- Sweep the withheld amount to the tax account immediately.
- Pay PAYG with the BAS quarterly.
Same logic for super (under Payday Super, from 1 July 2026):
From 1 July 2026, super must reach the fund within 7 business days of payday. The tax account approach:
- Sweep super amount to the tax account on payday.
- Pay super to the fund within the 7 BD window.
- Track lodgement and confirmation.
Builder takeaway:
- Open the tax account today if you haven’t.
- Sweep on the day of every stage payment receipt, not at month-end.
- The discipline prevents the most common builder insolvency cause: using ATO money as operating cash.
- BAS day becomes a non-event: the money is already there.
Also known as: ATO sweep account; GST account; tax savings account; quarterly sweep account; tax discipline account.
Category: Contracts & commercial.
Related
See also
Last updated: 2026-05-23. Verified: 2026-05-23. Quarterly review for currency.