The first BAS out of a new Xero file is where a conversion either becomes a set of books or becomes a dashboard with a government button. Plenty of Australian files lodge on time and still cannot say why the GST control account disagrees with the activity statement. The software did what it was told. Nobody told it the opening story.

This is the Xero setup we would run for a single-company file that lodges quarterly, charges GST at 10 per cent, and pays at least one person. It is not a feature tour. It is the work the original Bookkeeping Centre used to do in the week before the first lodgement, so the BAS was a reprint of the ledger and not a negotiation with a wizard.

If you are still choosing software, read MYOB versus Xero for a trade business first. If the file already exists and only the feeds look alive, start here anyway. Most of the damage is reversible if you do it before you lodge.

Conversion balances are the first journal, not a later tidy

A Xero file without conversion balances is a file that thinks the business began on the day someone connected a bank. It did not. At the conversion date you need:

  • every bank, card, loan, offset and clearing-house wallet, at statement balance
  • trade debtors and creditors, preferably as invoices dated on or before conversion, not as a single lump
  • GST payable or receivable that agrees with the last lodged BAS, not with a vibe
  • PAYG withholding payable that agrees with STP
  • Super payable that agrees with the clearing house — and, for conversion dates on or after 1 July 2026, with payday super
  • stock, WIP and fixed assets if they exist
  • owner loans, director loans, unearned income, and anything a tax agent will ask about in July
  • equity that makes the balance sheet balance for a reason, not because software forced a “balancing line”

Enter conversion invoices for open debtors and creditors so GST at 10 per cent sits on those invoices the way it will sit on new ones. A single conversion journal to “Accounts receivable” with no tax component is how the GST report and the aged list part company in week two.

Pick a conversion date that is a BAS period boundary if you can — 1 July, or the first day of a quarter. Converting on a random Wednesday because that was when the login arrived is how you spend the first BAS reconstructing half a quarter from the old system and half from the new.

Keep the old system read-only. Print or PDF the trial balance, aged lists, payroll YTD, and the last BAS working papers. Books a tax agent can use starts with that pack, not with a pretty Xero dashboard.

GST settings before the first invoice

Set the GST basis (cash or accrual) to match the registration, not to match a preference. Simpler BAS, if you are on it, still wants taxable sales, GST-free sales and acquisitions coded correctly. It does not want you to stop thinking.

GST is 10 per cent on taxable supplies and creditable acquisitions. Create or keep:

  • GST on income / GST collected
  • GST on expenses / GST paid
  • a GST control or BAS clearing account you will reconcile to each activity statement

Do not leave GST living only as a tax rate on invoices. The chart of accounts essay is the longer version. In Xero, map the BAS lodgement accounts so the activity statement draft can be tied to the control account in one sitting.

Set default tax rates on accounts, not on hope. Income that is regularly GST-free (some foods, some health, some education, exports) needs a GST-free default. Residential rent that is input-taxed needs an input-taxed default. A default of “GST on income” on every income account is how a mixed business invents a GST liability. See GST on mixed supplies if that is your file.

Capital purchases need a tax rate that the BAS will treat as capital, not as an ordinary expense. Private use needs a rate or a journal that takes the private share out of credits. Do not “put it to motor vehicle and remember”. You will not remember in October.

Payroll in Xero is a second product. Treat it like one.

Turn payroll on only after you have:

  • the award or agreement named for each person
  • ordinary hours defined
  • Super Guarantee at 12 per cent from 1 July 2025, with the current ATO maximum contribution base typed in, not remembered
  • payday super settings that pay on payday from 1 July 2026
  • pay items mapped to STP Phase 2 income types — Phase 2 is mandatory
  • earnings accounts split at least into ordinary, overtime, and super expense
  • PAYG and super as balance-sheet clearing accounts

Do not import a pay-item list from a friend’s file. Their “casual loading” might be an allowance. Their overtime might be ticked superable. Read ordinary time earnings and STP Phase 2 before you tick a box.

YTD figures at conversion must match the last STP event. If you start payroll mid-year with zeros, you will finalise a year that the ATO already half-knows. If you start from 1 July, confirm nothing in the old system is still reporting.

Employees are users of a sort. They should not be advisers. They should not see other people’s pays. We will come back to that in cloud security.

The chart, tracking, and the accounts you will actually open

Rename “Miscellaneous”. Rename “General expenses”. Create “Uncoded — this week” if you must, and empty it before you lock.

Split income the way you invoice. Split cost of sales the way you buy. Keep wages, super, workers compensation and payroll tax apart. Keep drawings and owner loans visible. If you hold stock or run jobs, do not expense every supplier bill to materials and then trust the P&L. Read inventory, job costing and a lying P&L before you turn on tracking categories and call them job costing.

Tracking categories are useful for locations, jobs or departments if you will review them. They are noise if you will not. Two tracking categories used every week beat six used never.

Bank accounts in Xero should match bank accounts in the world, one for one. Do not combine a card and a cheque account because you “only want one feed”. You will reconcile neither.

Bank feeds are a helper. Statements are the close.

Connect feeds after conversion balances are in, not before. A feed that starts coding into an empty file will invent income from your own transfers and GST from your own drawings.

Write bank rules that are boring and specific. A rule that says “anything with ‘VISA’ is meals” is how a fuel-card statement and a drawing disappear. Read bank feeds, rules and a false close before you accept Xero’s suggested rule on a Friday.

Reconcile to the PDF statement, not to the feed’s “reconciled” badge. The first month is where you discover merchant settlements arriving net, loan accounts that need a separate feed, and the owner’s personal card that paid a supplier “just this once”.

Lock dates, users and the first BAS week

Set a lock date. Use it. After the first month-end close — the ritual in month-end for owner-operators — lock the last day of that month. After you lodge the first BAS, lock the last day of the BAS period. Tell every user. A warehouse login that can edit last quarter is not agility. It is how a lodged statement parts from the ledger.

Users:

  • the owner: standard, bank rec if they will actually do it, no payroll admin unless they run pay
  • the bookkeeper or BAS agent: adviser access if they are your adviser, with MFA
  • staff who raise bills or invoices: the minimum, on their own contacts
  • nobody: “invite a mate to look”

MFA on every login. The security essay is the longer list.

The first BAS as a reprint

In the week you lodge:

  1. Reconcile every bank and loan to statement.
  2. Run the GST audit report. Look for capital as expense, private as creditable, GST-free as taxable, and invoices without a tax rate.
  3. Tie the GST control account to the draft activity statement. If they disagree, the draft is wrong or the ledger is. Do not lodge a difference you cannot name.
  4. Confirm PAYG withholding on the BAS agrees with STP for the same period.
  5. Confirm Super payable is what payday super (or, for periods before 1 July 2026, the quarterly leftover) says it should be. Super is not a BAS field in the GST sense; it is a neighbour you still check in the same week.
  6. Lock the period.
  7. Lodge. File the lodged statement, the working papers, and the Xero GST reports together.

If this is also the first quarter in a new entity, confirm the ATO registration, the GST basis, and the lodgement cycle before you trust Xero’s due date. The BAS lodgement calendar is the external clock. Software reminders are a copy.

What not to do in the first fortnight

Do not connect every app in the Xero marketplace. Do not build a 400-line chart. Do not invent tracking for “marketing campaigns” you will never review. Do not recode the old year’s bank feed into the new file “for completeness” if the old system already lodged those periods. Completeness is a conversion balance and a PDF, not a second history.

Do not give the tax agent the login and a hope. Give them the conversion trial balance, the first month-end pack, and a sentence about anything you parked. That is still the Rosebery test: a file you would sit beside while someone else read it aloud.

A Xero file that survives the first BAS is not a clever file. It is a file whose opening balances were true, whose GST is 10 per cent where it should be and nothing where it should not, whose payroll can defend STP and 12 per cent SG, and whose lock date means the lodged quarter cannot be edited by a bank rule at midnight. The rest is furniture.