Taxes payable is the amount of tax a business owes but has not yet paid, recorded as a current liability on the balance sheet. It represents money the business has set aside, in an accounting sense, to hand over to the tax authority. In Australia that usually covers income tax payable, GST payable, and PAYG withholding owed on employees’ wages. It is a liability because the business has an obligation to pay it, and it is current because it is normally due within twelve months.
Where do taxes payable sit in the accounts?
Taxes payable appears on the balance sheet, under current liabilities, alongside things like accounts payable and wages owing. It is not on the profit and loss statement. This is the point that confuses people most, so it is worth being clear: the balance sheet shows what you owe at a moment in time, and taxes payable is the slice of that made up of tax. When you pay the tax, the liability goes down, and so does your cash.
What is included in taxes payable?
Taxes payable is a grouping, not a single tax. For an Australian business it commonly includes:
income tax payable, the income or company tax owed on the year’s profit
GST payable, the net GST collected on sales after subtracting the GST paid on purchases
PAYG withholding payable, the tax withheld from employees’ pay through payroll that is owed to the ATO
payroll tax payable, if the business is over the state threshold
fringe benefits tax payable, if the business provides fringe benefits
Some businesses show these as separate lines, and others roll them into a single taxes payable figure. Either way, each one is money collected or owed that belongs to the ATO, not to the business.
Taxes payable versus tax expense
These two terms get mixed up constantly, so here is the difference side by side.
| Tax expense | Taxes payable | |
| What it is | The tax cost of the period’s profit | The tax still owed at a point in time |
| Where it sits | Profit and loss statement | Balance sheet, current liabilities |
| Question it answers | How much did this year’s profit cost in tax | How much do we still have to pay |
| Goes up when | You earn taxable profit | You incur tax and have not yet paid it |
In short, tax expense is on the profit and loss and measures the cost, while taxes payable is on the balance sheet and measures the outstanding debt. They are often different numbers, because of timing, instalments already paid, and amounts not yet due.
A simple example
Say a company works out it owes $20,000 of income tax for the year. In the books, it records the cost and the obligation at the same time: a debit to income tax expense of $20,000 on the profit and loss, and a credit to income tax payable of $20,000 on the balance sheet.
Later, when the company actually pays the ATO, it clears the liability: a debit to income tax payable of $20,000 and a credit to cash of $20,000. The expense stays on the year it related to, while the payable rises when the tax is recognized and falls back to nil when it is paid.
GST works the same way. GST you collect on sales sits as a liability until you lodge your BAS and pay the net amount across to the ATO, at which point the payable is cleared.
Why taxes payable matters in practice
For a business owner, taxes payable is a reminder that not all the cash in the bank is yours. The GST you have collected and the PAYG you have withheld are sitting in your account, but they belong to the ATO and will need to be paid. Businesses that treat that money as spendable are the ones that get caught short at BAS time. Watching your taxes payable balance, and setting the money aside as it builds up, is one of the simplest ways to avoid a cash flow shock.
