To prepare your BAS in Xero, reconcile all bank accounts and credit cards for the quarter, verify GST coding on every transaction, check that PAYG withholding matches your payroll reports, then review and lodge your Activity Statement through Xero or your BAS agent. The process takes 20-30 minutes if your bookkeeping is current, or several hours if you've left it to the last week
Preparing a Business Activity Statement (BAS) isn't difficult when the underlying bookkeeping is done properly throughout the quarter. The reason BAS lodgement becomes stressful for most small businesses is that they try to do three months of bookkeeping in the week before the deadline. That's not a BAS problem. It's a bookkeeping problem
This guide walks through the actual BAS preparation process in Xero, step by step, the way a registered BAS agent would do it. If you're lodging your own BAS or want to understand what your bookkeeper should be doing before they hit submit, this is the process
Simpler BAS or full BAS - check which one you're on
Before anything else, check whether you're on a Simpler BAS or a full BAS. This determines what labels appear on your Activity Statement in Xero and what you're actually required to report
Simpler BAS is the default for most small businesses. It only reports GST at two labels - 1A (total sales) and 1B (GST on purchases) - plus PAYG withholding if you have employees (W1 and W2) and PAYG instalments if applicable (T7 or T2/T8). That's it. No export breakdowns, no capital acquisition fields, no separate GST-free reporting lines
Full BAS includes additional GST fields: 1C (export sales), 1D (GST-free sales), 1E (capital purchases), 1F (non-capital purchases), and more. You'll be on a full BAS if your business has been specifically told by the ATO to use it, or if you've opted in. Most businesses under $10 million turnover are on Simpler BAS and should stay there
To check or change your BAS type, go to Accounting > Accounting settings > Financial settings > Go to new BAS. This opens the Business Activity Statement Settings screen where you choose Simpler BAS or Full BAS, set your GST calculation period (monthly, quarterly, or annually), GST accounting method (cash or accrual), and PAYG withholding period. The ATO connection setup is on the same screen. If any of these settings don't match what the ATO has on file for your business, your draft BAS figures won't line up and lodgement will fail or produce incorrect results
- All bank accounts and credit cards reconciled to the end of the quarter
- All supplier invoices entered (accrual basis: GST counts in the quarter the invoice was dated)
- ATO connection enabled in Xero (Accounting > Accounting settings > Financial settings > Go to new BAS > Lodge reports directly from Xero)
- Xero subscription (Standard or above) - trial organisations cannot connect to the ATO
Go to Reports > Activity Statement. Select the reporting period and Xero generates a draft BAS. If you're on Simpler BAS, you'll see labels 1A and 1B for GST plus your PAYG fields. Full BAS shows the expanded breakdown including 1C through 1G. Run the GST Reconciliation report for the same period - this compares Xero's calculated GST against your general ledger.
- Manual journals with GST lines from year-end adjustments that weren't reversed
- Transactions coded to "No GST" or "BAS Excluded" that should have been "GST on Expenses"
- Private expenses coded to the business with GST claimed
- Bank feed items reconciled to the wrong period
Run the Payroll Activity Summary report for the quarter. Compare gross wages (W1) and PAYG withheld (W2) against what Xero has pre-filled on your Activity Statement. They should match. Mismatches between your BAS and your STP reports are one of the first things the ATO's automated systems flag.
- Pay runs processed with the wrong period dates
- Terminated employees with final pay not yet processed
- Director payments or contractor withholding coded outside of payroll
- STP corrections allocated to the wrong period
If the ATO has you on the instalment amount method, Xero pre-fills the amount at label T7. Check it matches the ATO notice. If your income has changed materially, you can vary - but under-estimating triggers GIC on the shortfall at year end. For the instalment rate method, enter your instalment income at T8 and apply the rate at T2.
Check the bottom line - does the amount owing or refund look reasonable? A business that normally owes $5,000 shouldn't suddenly owe $15,000 without a clear reason. Investigate before lodging.
- Lodge from Xero - click Approve, then File with ATO. Confirmation within minutes
- Send to your BAS agent - they review, adjust, and lodge. You get the agent concession deadline (typically four extra weeks) and safe harbour protection
The quarterly rhythm that makes BAS easy
The businesses that never stress about BAS are the ones where the bookkeeping happens throughout the quarter, not in the last week
Reconcile your bank weekly - 20 minutes, in and out. Enter supplier invoices as they arrive, not in a batch on the 25th. Review your payroll reports at the end of each month. By the time the quarter ends, your BAS preparation is a review and approval exercise that takes half an hour, not a data-entry marathon that takes half a day
If you're consistently leaving BAS prep to the last minute, the problem isn't the BAS. It's the bookkeeping cadence. Either build the weekly habit or hand it to someone who will. At Digit, our managed bookkeeping clients have their BAS ready before the quarter even ends. That's not magic. It's just consistent reconciliation, every week, all year
BAS lodgement requirements and penalty rates referenced in this article are sourced from the Australian Taxation Office, current as at March 2026
