Deposit and Milestone Billing for Geelong Allied Health Clinics

Why Geelong clinics use deposit and milestone billing

Physiotherapy practices, psychology clinics, podiatrists and speech pathology providers across Geelong increasingly ask clients to pay a deposit before starting a treatment program, or to pay in stages as a course of care progresses. It protects the clinic from no-shows on expensive initial assessments, smooths cash flow across multi-session plans, and matches revenue to the actual delivery of care rather than a single lump-sum invoice that gets paid late.

The problem is that most practice management software (Cliniko, Halaxy, Power Diary) handles the clinical side well but doesn't always talk cleanly to Xero, and deposits get coded as straight income the moment they land in the bank feed. That's where clinics run into trouble with both the ATO and their own financial reporting.

GST treatment of deposits under the GST Act

Under the A New Tax System (Goods and Services Tax) Act 1999, most core allied health services fall under the GST-free provisions in Subdivision 38-B — this covers services like physiotherapy, chiropractic, psychology, podiatry and osteopathy where the practitioner is recognised and the service is generally accepted as necessary for the client's treatment. If that's the whole of what you're charging for, a deposit against that service is also GST-free, and there's no GST attribution issue.

• Mixed supplies: if the clinic also sells taxable items — braces, orthotics, retail products, cosmetic or non-medical services — GST applies to that portion, and under section 29-5, GST is attributed to the earlier of the payment being received or an invoice being issued.
• Cash vs accruals: clinics reporting GST on a cash basis (the norm for most small allied health businesses) declare GST in the period the deposit is actually received, even if the service hasn't been delivered yet.
• Split invoicing: where a single invoice covers both GST-free treatment and a taxable retail item, the invoice needs to clearly separate the two so GST is only charged on the taxable line.

Getting this wrong is one of the most common errors we see when reviewing BAS lodgements for allied health clients moving to Geelong from interstate practices with different billing habits.

Recording deposits correctly in Xero

The cleanest way to handle a genuine deposit — one that's held against a future service and refundable under certain conditions — is to treat it as a liability, not immediate income.

• Create a "Client Deposits Held" current liability account in Xero's chart of accounts, separate from trading income.
• When a deposit is received, code the bank transaction to this liability account rather than a sales/income code.
• When the corresponding service is delivered, raise the final invoice for the full service value, then apply the held deposit as a payment against that invoice, moving the value out of the liability account and into earned income.
• For clinics using Cliniko or Power Diary, reconcile the deposit ledger inside the practice software against the Xero liability balance monthly — this is where discrepancies usually surface first.

This approach keeps your Profit & Loss accurate (you're not overstating revenue for services not yet delivered) and gives you a clean audit trail if a client requests a refund or a dispute arises.

Milestone billing for treatment programs and NDIS plans

Many Geelong allied health providers run structured programs — a 6-session rehabilitation plan, a psychology treatment course, or an NDIS support plan — where billing happens at defined milestones rather than all upfront.

• Invoice as delivered: each milestone invoice should correspond to sessions actually completed, particularly for NDIS-funded supports where claims must align with the NDIS Price Guide and be substantiated by session notes.
• Medicare rebate timing: where a client is claiming a Medicare rebate (e.g. under a GP Mental Health Care Plan), the milestone invoice date and the claim date need to match the actual appointment date, not a bundled plan date.
• Use tracking categories: set up Xero tracking categories by program type (NDIS, Medicare-rebated, private) so you can reconcile milestone billing against funding source at BAS time.
• Avoid bundled upfront invoices for a whole plan unless the client has genuinely pre-paid and you're holding the balance as a liability per the deposit method above.

Cancellation fees and unearned revenue

When a client cancels and forfeits a deposit, the tax treatment depends on what the original supply was:

• If the underlying service was GST-free, the forfeited deposit is generally also GST-free — no taxable supply ever occurred.
• If the deposit related to a taxable component, the ATO treats a forfeited deposit as consideration for a supply (effectively, payment for the right to cancel), and GST is typically payable in the period it's forfeited.
• For income tax purposes under ITAA 1997, forfeited deposits become assessable income at the point they're forfeited, not when originally received — so your bookkeeping needs to move the amount out of the liability account into income at that trigger point, not before.

Clinics with a written cancellation policy (24-48 hour notice, percentage retained) find this far easier to administer consistently, and it gives your bookkeeper a clear rule to apply rather than judgement calls case-by-case.

BAS reporting and cash flow considerations

Deposit and milestone billing genuinely helps smooth cash flow for Geelong clinics carrying wages, rent and equipment costs — but only if the bookkeeping keeps pace with it. A few practical points:

• Most small allied health businesses (turnover under $10 million) are eligible to report GST on a cash basis, which aligns GST reporting with when money actually moves — generally the simplest option when running deposits and payment plans.
• Reconcile the "Client Deposits Held" liability account every BAS period so it doesn't silently grow into a black hole that nobody remembers to clear.
• As a Registered BAS Agent under TASA 2009, we're required to keep accurate records supporting GST classifications — this is exactly the kind of structure the ATO expects to see if a clinic is ever reviewed.
• Run a quarterly report of outstanding deposits against unbilled sessions so you can see, at a glance, how much revenue is sitting "in trust" waiting to be earned.

What to do next: if your clinic takes deposits or bills in stages, sit