How to Reconcile Mixed GST Business Expenses in Xero (Without Messing Up Your BAS)

If you’re reconciling your own transactions in Xero and come across a business expense that includes both GST and GST-free items, it’s important to split the transaction correctly. This ensures your BAS reporting is accurate and you're not claiming more GST than you're entitled to.

Here’s how to do it the right way—step by step.

Scenario:

You bought supplies from Officeworks for $110.

• $66 was for office stationery (taxable, includes GST).

• $44 was for coffee and tea bags (GST-free).

If you code the full $110 as GST-inclusive, you’ll over-claim GST—and the ATO won’t love that.

Step-by-Step: Splitting GST and GST-Free Items in Xero

1. Go to the Bank Reconciliation Screen

• In Xero, go to Bank accounts, then choose the bank account with the transaction.

• Find the transaction you’re reconciling.

  
  

2. Click “Add Details”

• Instead of using the “Create” or “Match” buttons, click “Add details” under the transaction.

• This opens up a full transaction entry screen where you can itemise the amounts.

  
  

3. Add the First Line (with GST)

• In the first line:

  • Description: Write something like “Office supplies”

  • Account: Choose the correct expense account (e.g., Stationery or Office Expenses)

  • Amount: Enter $66

  • GST: Choose “GST on Expenses”

    
    

4. Add the Second Line (GST-Free)

• Click “Add another line”

• In the second line:

  • Description: Enter “Coffee / Tea”

  • Account: Choose the relevant expense account (e.g., Staff Amenities)

  • Amount: Enter $44

  • GST: Select “GST Free Expenses”

    
    

5. Check the Total

• Make sure the total adds up to the full $110.

• Double-check that GST is only being claimed on the correct portion.

  
  

6. Save and Reconcile

• Click “Save Transaction”

• You’ll be taken back to the reconciliation screen—now just hit “OK” to reconcile it.

  
  

Why This Matters

Getting GST right isn’t just about avoiding trouble with the ATO—it helps keep your books clean and your reports accurate. Splitting out GST and GST-free components is a small step that makes a big difference come BAS time.

If you’re ever unsure about which items are GST-free, a quick look at the invoice (or a chat with your bookkeeper) can save a lot of hassle later on.

Need help setting up more efficient reconciliations or checking your GST settings? Feel free to reach out—happy to help.

Correctly coding your business expenses for GST is important!