Why does my clinic get a BAS refund instead of paying?

Because clinical work is GST free, so little of the practice's income reaches GST on sales, while rent, software, merchant fees and equipment carry GST the practice can claim. When the credits on purchases outweigh the GST on sales the net amount for the period is negative and the ATO pays it back.

Which account do I code the ATO payment or refund to in Xero?

The GST liability account the published activity statement posted to, at the BAS Excluded tax rate. It is neither income nor an expense: the line settles a liability the statement created. Where the same statement carried PAYG withholding or an instalment, split the bank line so each amount lands on the account that holds it.

The refund is smaller than the statement said. What happened?

Often the credit was applied to another tax debt before the balance was paid. Part IIB of the Taxation Administration Act 1953 deals with running balance accounts and with applying payments and credits, including against a tax debt. Reconcile the amount that arrived and account for the difference against the debt it went to.

Does a funder deposit belong on the activity statement?

The revenue behind the deposit does belong on it, on the date the practice reports it under its own basis. The movement of settled money between the practice's own accounts does not, and coding that movement as a sale counts the same money twice at G1.

Which revenue accounts put GST on my sales?

In the allied health canonical template, reports and assessments on account 420, supervision and training on 421, products and equipment on 422, and employee assistance work on 409. The funder default rows for Medicare, DVA, the NDIS, health funds, WorkCover, insurers and private patients post GST free income.

Is all allied health work GST free?

No. The ATO sets three conditions for a health service that is not a medical service: it has to be a listed health service, performed by a recognised health professional in that service or by their assistant on the ATO's own conditions, and generally accepted in the profession as necessary for the appropriate treatment of the recipient of the supply. Work that fails one of them, such as a report a business engages the practitioner to write, is taxable and reaches 1A.

Xero how to

Reconcile a BAS refund in Xero

Most allied health revenue posts at the GST free income rate, so a clinic's activity statement usually resolves to a refund rather than a payment. The money the ATO sends is neither income nor an expense. Code the bank line to the GST liability account the activity statement posts to, at BAS Excluded, and split it where the same statement carries PAYG amounts.

Key facts

What the line settles: The net amount for the period, which Division 17 of the GST Act defines and Division 35 refunds²
Why the sign is usually a refund: Clinical revenue posts at the GST free income rate, so little reaches GST on sales while purchases still carry input tax credits⁴
The three conditions behind a GST free health service: A listed health service, performed by a recognised health professional in that service or by their assistant on the ATO's own conditions, and generally accepted in the profession as necessary for the appropriate treatment of the recipient of the supply⁹
Why a report can be taxable: The recipient of the supply is whoever engages the practitioner, and the ATO says a supply of a practitioner's services to another business is not usually GST free¹⁰
When a product follows the service: Goods are GST free only where they are a necessary part of providing the GST free service and are supplied at the same time and place as it¹¹
Revenue rows in the allied health template: 23 rows, 11 at the GST free income rate and 12 at GST on income⁴
Funding source defaults: 10 of the 11 funder default rows post GST free income, the exception being employee assistance on account 409⁴
Where the taxable work sits: Reports on account 420, supervision and training on 421, products and equipment on 422, and employee assistance work on 409⁴
The same call in a second template: The psychology template posts a report to account 420 at GST on Income as well, so the treatment is not a quirk of one chart⁵
A refund can be applied elsewhere first: Part IIB of the Taxation Administration Act 1953 covers applying a credit against tax debts before a balance is paid out³

Why a clinic sits on the refund side

The generic answer to this question assumes a business that charges GST on what it sells and hands most of it to the ATO each quarter. An allied health practice is the other shape. Its clinical work is GST free, so almost nothing reaches GST on sales, while its rent, software subscriptions, merchant fees and equipment all carry GST it can claim back.

That is arithmetic, not a concession. The statement resolves to one net amount for the period, and when the credits on purchases outweigh the GST on sales the amount is negative and the ATO pays the practice. The GST Act keeps the two halves in separate places: Division 17 is where the net amount is worked out, Division 35 is where a refund of it lives.

So a practice owner reading a Xero how-to about paying the ATO is reading about the wrong direction, and the step that matters, where the money lands in the ledger, is the same either way.

What makes a clinical line GST free

The refund position rests on one thing: most of what a clinic bills is GST free at the point of supply. For a health service that is not a medical service, the ATO sets three conditions, and all three have to hold. It has to be a listed health service, performed by a recognised health professional in that listed service or by their assistant on conditions the ATO sets out separately, and generally accepted in that profession as necessary for the appropriate treatment of the recipient of the supply.

The listed services an allied health practice usually bills under, drawn from the ATO's longer list: psychology, physiotherapy, occupational therapy, speech pathology, speech therapy, social work, dietary, audiology, chiropractic, osteopathy, podiatry and nursing.
A service has to be one of the listed services rather than similar to one. The ATO's own example is remedial massage, which is not physiotherapy and is not listed on its own.
A recognised health professional is registered, permitted or approved under state or territory law for that service. Where no such law exists, membership of a national professional association with uniform registration requirements takes its place.

The third condition is the one that decides the taxable rows. The recipient of the supply is whoever engages the practitioner, which is often the patient and is sometimes a business. The ATO says a supply of a practitioner's services to another business is not usually GST free. That is why a report written for an insurer or a lawyer, and the rooms a clinic supplies to a contractor practitioner, sit on the taxable side of the chart.

The rows that put anything at 1A

The allied health canonical template holds 23 revenue rows. 11 post at the GST free income rate and 12 at GST on income, but that split is not what it looks like. 10 of the 11 funding source defaults, the rows that catch ordinary clinical work for Medicare, DVA, the NDIS, health funds, WorkCover, insurers and private patients, post GST free. Employee assistance work on account 409 is the exception.

Everything else that is taxable is a service category row: reports and assessments on account 420, supervision and training on 421, products and equipment on 422, with employee assistance cancellations and group sessions staying on 409. Those few rows carry most of what a clinic reports at 1A, which is why the statement moves when the report writing does.

The product row is the one practices read past. The ATO treats goods as GST free only where they are a necessary part of providing the GST free service and are supplied at the same time and place as it, so a dressing used during a consultation follows the service while the extra packet the patient takes home does not.

Plate 1A report is the row a clinic reports GST on, in every canonical template.

Check the statement before you lodge

Reconciling the ATO line is the easy half. The half that decides whether the number was right is the read of the statement before it goes, and it takes three passes: the sales labels, the exceptions list, and the accounts behind them.

What each Xero tax rate does to the activity statement⁸⁴

Xero tax rate	Where the line shows up
GST on Income	Total sales, and GST on sales at 1A
GST Free Income	Total sales at G1, with nothing at 1A
BAS Excluded	Nowhere on the statement
GST on Expenses	Purchases, and GST on purchases at 1B

The exceptions list is the one worth reading line by line. It shows the items posted at a tax rate other than their account's default, which is where a report billed to a funder account, or a product sold on a clinical invoice, shows up.

Four codings that move the statement the wrong way

What each miscoding costs⁸⁴

What was coded	What it does to the statement
GST free clinical work coded as GST on Income	The practice reports GST at 1A it did not charge, and has to amend to get it back
Taxable reports, supervision or products coded as GST Free Income	GST is understated at 1A, and going back to the payer afterwards is rarely an option
Clinical revenue coded as BAS Excluded	Sales are missing from G1, which distorts the turnover ratios the statement is read against
A clearing account movement coded as a sale	The same money is counted twice at G1

The last row is the one that catches practices with funder deposits. Money moving from a funder settlement account into the bank has already been recognised as revenue when the invoice was raised, so the movement itself belongs outside the statement.

Coding everything GST-free because 'health is GST-free' is one of the most common errors we find in practice files, and it surfaces at the worst time, during an ATO review.⁶

The same bookkeeper names the items that catch practices out: medico-legal reports, some workplace assessments, supervision sold to other providers, product sales and room rental to contractors. An accountant writing about NDIS work names the opposite error, that treating a whole job as GST free because the client is a participant is a compliance error the ATO sees in lodged statements.

Reconciling the ATO line

Publish the statement in Xero so the period is fixed, then lodge it.
Find the ATO credit in the bank account when the money moves.
Code it to the GST liability account the published statement posted to, at the BAS Excluded tax rate.
Split the line where the same statement carried PAYG withholding or an instalment, so each amount lands on the account that holds it.
Check the GST liability account afterwards: what is left should be the movement since the period end and nothing older.

When the money does not match the statement

A refund that arrives smaller than the statement said, or that does not arrive at all, is usually not a mistake. Part IIB of the Taxation Administration Act 1953 deals with running balance accounts and with how payments and credits are treated, including applying an amount against a tax debt before any balance is paid out. A practice carrying a PAYG withholding balance or an income tax debt can see the credit go there first.

Reconcile what arrived, then account for the difference against the debt it was applied to rather than adjusting the GST liability account to fit the bank. The statement was right; the money took a detour.

Cash or accrual changes which quarter it lands in

A practice reporting on a cash basis picks up GST by payment date, so a claim lodged in one quarter and paid by the funder in the next belongs to the quarter the money arrived. Funder lags make that common rather than unusual, and it is the reason the payment date on a receipted invoice has to be the date the funder paid rather than the date the bank line appeared. The basis question has its own page: cash versus accrual GST for a clinic.

What Ledger Map does with it

Ledger Map does not reconcile the bank for you. It posts one balanced document set per deposit and leaves one exact match in the bank feed, so the funder side of the ledger is already right when the statement is run. The tax rate on each revenue line comes from the standing map the practice approved, not from a per-invoice decision made at speed.

The account and the tax rate on each row come from the canonical template the practice starts from, and a line the map cannot resolve becomes a question with the options laid out rather than a quiet posting. Nothing on this page is a treatment Ledger Map chose for a practice. You can see how the map is built on how it works.

Before you hand it to the BAS agent

The GST free sales label carries the clinical revenue accounts, and the sales total carries both the GST free and the taxable work.
Reports, supervision, training and product sales are on their own accounts rather than folded into clinical revenue.
Settlement account movements are outside the statement, so a funder deposit is not counted as a second sale.
The exceptions list has been read, and the items on it are deliberate.
The prior period's ATO line is reconciled, so the GST liability account starts the quarter clean.

What this page does not settle

Two things are deliberately left open. The account code Xero gives its GST liability account is not printed here, because no source that loaded on the day this page was written states it, and a wrong code is worse than a described one. Read it off your own chart of accounts.

The second is item level GST on the grey areas: supervision, report writing funded inside an NDIS plan, and services delivered by a therapy assistant. The canonical templates post a default and hold the reasoning, and the call for a given practice belongs with its accountant or BAS agent rather than with a page.

Questions

Why does my clinic get a BAS refund instead of paying?
Because clinical work is GST free, so little of the practice's income reaches GST on sales, while rent, software, merchant fees and equipment carry GST the practice can claim. When the credits on purchases outweigh the GST on sales the net amount for the period is negative and the ATO pays it back.
Which account do I code the ATO payment or refund to in Xero?
The GST liability account the published activity statement posted to, at the BAS Excluded tax rate. It is neither income nor an expense: the line settles a liability the statement created. Where the same statement carried PAYG withholding or an instalment, split the bank line so each amount lands on the account that holds it.
The refund is smaller than the statement said. What happened?
Often the credit was applied to another tax debt before the balance was paid. Part IIB of the Taxation Administration Act 1953 deals with running balance accounts and with applying payments and credits, including against a tax debt. Reconcile the amount that arrived and account for the difference against the debt it went to.
Does a funder deposit belong on the activity statement?
The revenue behind the deposit does belong on it, on the date the practice reports it under its own basis. The movement of settled money between the practice's own accounts does not, and coding that movement as a sale counts the same money twice at G1.
Which revenue accounts put GST on my sales?
In the allied health canonical template, reports and assessments on account 420, supervision and training on 421, products and equipment on 422, and employee assistance work on 409. The funder default rows for Medicare, DVA, the NDIS, health funds, WorkCover, insurers and private patients post GST free income.
Is all allied health work GST free?
No. The ATO sets three conditions for a health service that is not a medical service: it has to be a listed health service, performed by a recognised health professional in that service or by their assistant on the ATO's own conditions, and generally accepted in the profession as necessary for the appropriate treatment of the recipient of the supply. Work that fails one of them, such as a report a business engages the practitioner to write, is taxable and reaches 1A.

Sources

Open questions

Xero's default account code for the GST liability account is not printed here. No source read for this page names it and ato.gov.au refuses automated fetches, so the account is named by its role and the reader reads the code off their own chart.
The ATO's own wording for the G1, 1A and 1B labels comes from the business activity statements page, which did not load, so the labels are described by what they hold rather than quoted. Which labels a practice reports is set by its reporting method, and the ATO reporting methods page was read on 4 Sep 2026 through search result extracts rather than fetched. The GST and health pages behind the treatment facts were read from verified copies.
Whether a given practice sits in a refund position depends on its own mix of taxable work and its input tax credits. The direction described here is the usual one for a clinic, not the outcome for every clinic.
GST on supervision, on report writing funded inside an NDIS plan, and on therapy assistant services is unsettled across the sources this corpus reads. The templates post a default and hold the reasoning; the call for one practice belongs with its accountant or BAS agent.

GST reporting methods
Australian Taxation Office. Retrieved 4 Sep 2026. Source updated 15 Apr 2021.
primary
A New Tax System (Goods and Services Tax) Act 1999
Federal Register of Legislation. Retrieved 3 Sep 2026.
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Taxation Administration Act 1953, Part IIB
Federal Register of Legislation. Retrieved 3 Sep 2026.
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Allied health by funding source, the canonical template
Ledger Map. Retrieved 3 Sep 2026.
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Psychology with booking deposits, the canonical template
Ledger Map. Retrieved 3 Sep 2026.
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Bookkeeping for speech pathology and allied health practices
True Tally. Retrieved 3 Sep 2026. Source updated Jul 2026.
secondary
Providing GST-free supplies to NDIS participants
RSM Australia. Retrieved 4 Sep 2026. Source updated 30 Jul 2026.
secondary
How GST works in Xero
Xero Central. Retrieved 3 Sep 2026.
unverified
Other health services, GST and health
Australian Taxation Office. Retrieved 3 Sep 2026. Source updated 12 Jun 2024.
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Recipient of the supply, GST and health
Australian Taxation Office. Retrieved 3 Sep 2026. Source updated 12 Jun 2024.
primary
Goods supplied as part of a GST free health service, GST and health
Australian Taxation Office. Retrieved 3 Sep 2026. Source updated 12 Jun 2024.
primary
The Simpler Business Activity Statement
Xero Central. Retrieved 4 Sep 2026.
primary
Account Transactions report
Xero Central. Retrieved 4 Sep 2026.
primary
Reconcile your bank account
Xero Central. Retrieved 4 Sep 2026.
primary

Review

Last reviewed 3 Sep 2026 by Shane

General information for Australian allied health practices, not tax advice. Confirm a treatment with your BAS agent or accountant before you post it.

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