Project Cash Reserves: Reconcile PAYG Instalments Before Funding the Next Site

RECONCILE TAX RESERVES BEFORE THE NEXT DEPOSITAustralian project cash planning and PAYG instalments

A developer can finish one project, repay the lender and see cash available for the next deposit. The risk is treating that bank balance as fully available before checking the entity’s tax position. An instalment notice can arrive while the next development is paying consultants and has no sales proceeds to replenish cash.

The practical decision is how much cash can safely be committed to the next site after allowing for current tax payments and an evidence-based reserve. Make it an accountant-led reconciliation rather than a percentage guessed from the previous project’s headline margin.

Know which payment you are forecasting

The ATO’s PAYG instalment explanation describes instalments as prepayments of tax on business and investment income, credited when the tax return is processed. They are not a second project profit tax. Keep them visible in the cash forecast while avoiding counting both the instalment and the same final tax liability as separate economic costs.

Ask your accountant to identify the entity that earned the income and the entity that will pay each obligation. Money held in one project account does not by itself show which company, trust or individual has the tax bill. Obtain advice before moving funds between entities or distributing them to participants.

Use the notice, not an assumed quarterly calendar

The Tax Practitioners Board guidance explains that PAYG instalments are reported and paid through an activity statement or instalment notice, with the due date shown on that document. Use the actual current document to establish the payment in your forecast. Ask the tax agent to check any lodgment arrangements that apply.

Collect the notices, account statements, payments already made and latest tax estimate. Match each item to the relevant income year and entity. Keep a separate line for any earlier assessed tax still payable. Otherwise a reserve described simply as tax can hide an instalment already paid or overlook an older debt.

Then place the payments beside the next project’s land settlement, design deposits and construction commitments. The question is not just whether the forecast shows a profit at the end. It is whether the entity can meet its obligations in the intervening months without using money already committed elsewhere.

A slower project does not justify an automatic nil variation

A quiet construction quarter can be misleading when assessing tax for the whole year. Give the tax agent the full development pipeline, expected settlements, other income and current cost information. Do not decide that no settlement this month means no annual tax exposure.

The Australian Government’s PAYG instalment guidance explains that instalments can be varied on the BAS or instalment notice and warns that varying too low can attract interest and penalties. Have the registered tax agent assess the method and current rules. A cash shortage is a reason to seek advice, not evidence supporting a lower tax estimate.

Ask for the estimate assumptions in writing, including what would trigger another review. A contract falling over, a delayed settlement or an updated cost forecast can warrant a fresh discussion. Keep the advice tied to the correct entity and year so a later project update does not silently replace the basis of the tax calculation.

A practical second-project scenario

Imagine a small development business has sold its first completed dwellings and is considering a new acquisition. Its feasibility includes a tax expense, but the available-cash worksheet simply uses the current bank balance. The two documents have not been reconciled.

Before accepting another deposit commitment, ask the accountant to show tax already prepaid, amounts still expected to fall due and the remaining reserve. Ask the finance broker which project cash is restricted by lending arrangements. Give the solicitor the resulting funding position before making a commitment the purchaser may struggle to meet.

Prepare a base case and a slower settlement case for the next project. In both, preserve the confirmed payment obligations. If the proposed deposit consumes the reserve, the acquisition structure or timing needs another look. The example does not assume that the lender will fund tax or that a payment extension will be available.

TPC deal lens: reconcile profit and usable cash

Keep a short bridge from project profit to cash available: loan repayments, unpaid project costs, tax payments, reserves and proposed distributions. Have the accountant check how instalments are recognised so you neither omit them from cash flow nor double-count them in the profit calculation.

A student can prepare the source documents and forecast dates without deciding the tax treatment. Your next useful action is to commission a written reconciliation, name who monitors notices and schedule a review before another acquisition or distribution. That creates a concrete decision point rather than a vague instruction to save something for tax.

Your next decision checklist

1. Match each current notice and payment to its entity and income year.
2. Have the registered tax agent reconcile prepayments, outstanding tax and the reserve.
3. Compare that reserve with the next deposit and a slower settlement forecast before committing.

Key Takeaway

Before committing sale proceeds to the next site, reconcile instalments, expected final tax and cash already reserved. An attractive new deal still needs funding that is available when required. Can your team explain the difference between today’s bank balance and the amount the business can responsibly commit?

Image credit: Sasun Bughdaryan / Unsplash. Illustrative photograph. Source · Licence Cropped and resized from the original; no content retouching.

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