Tax Rates are used to track and calculate GST in Xero and finally to correctly report GST to the ATO in the Activity Statement. 

Tax Rates must be assigned when creating Accounts and Items (Products & Services). They can also be assigned as default to Customer and Supplier Contacts. The Tax Rate assigned to an account, item and/or contact will then flow across into the Xero transactions making the correct GST determination.

In Xero, GST should always be calculated by the Tax Rates and never calculated manually and entered by posting it directly to the GST Account. 

The correct way to set up Tax Rates in Xero depends on the Business size and GST registration:

• Businesses with an Annual Turnover under $75,000 not registered for GST only require to use one tax rate;
• Businesses with an Annual Turnover under $10 million (Small Businesses), registered for GST, must report GST to the ATO using Simplified BAS. This reporting option requires Small Businesses to only report three types of GST transactions: Total Sales, GST on Sales and GST on Purchases;
• Businesses with an Annual Turnover over $10 million (Large Businesses) must report GST to the ATO using Full BAS. This reporting option requires reporting a wider range of GST transactions (including GST on Exports and GST on Capital Purchases).

If the ATO amends the Business' GST reporting requirements, the Tax Rates in Xero must be changed to reflect these new reporting options.

Set Up Tax Rates in Xero

1. Go to Accounting > Advanced
   
   è  The Advanced Settings screen
   
   
   
2. Click on Tax Rates
   
   è  The Tax Rates screen opens showing the list of Tax Rates applicable to Simplified BAS by default
   
   
   
3. If your Business:
   • is required to report GST using Simplified BAS, no further action is required,
   • is required to report GST using Full BAS, go to the next step
4. Click on [Change to advanced tax rates]
   
   è  A confirmation message is displayed
   
   
   
5. Click on [Change to advanced tax rates] again
   
   è  The list of Tax Rates expands including additional codes to report using Full BAS
   
   
   
6. If your Business' GST Reporting requirements change after you have already been using Xero and reporting using Simplified BAS, you will need to manually update the new Tax Rates in the following areas:
   • Chart of Accounts
   • Items (Products & Services)
   • Unapproved Invoices (Drafts and Quotes)
   • Contacts' defaults
   • Repeating Transactions
   • Bank Feed Rules

Update Tax Rates in the Chart of Accounts

Xero provides the ability to bulk updates Tax Rates in the Chart of Accounts

1. Go to Accounting > Chart of accounts
   
   è  The Chart of accounts screen opens
   
   
   
2. Select the accounts whose default Tax Rate you wish to update and click on [Change Tax Rate]
   
   è  The Change Tax Rate pop up screen opens
   
   
   
3. Select the Tax Rate and click on [Save]
   
   è  The Accounts' Tax Rate updates to the selected rate