What are non-current liabilities?

Published Thursday 23 July 2026

Table of contents

• What are non-current liabilities?
• Types of non-current liabilities
• Non-current liabilities vs current liabilities
• Non-current liabilities on the balance sheet
• How to calculate non-current liabilities
• How non-current liabilities affect cash flow and business value
• What can't be classified as non-current liabilities
• Track your liabilities with Xero
• FAQs on non-current liabilities

Key takeaways

• Non-current liabilities are financial obligations your business doesn't need to settle within the next 12 months, such as long-term loans, leases, and deferred tax liabilities.
• They sit below current liabilities on your balance sheet and give lenders and investors a clear picture of your long-term financial commitments.
• You can calculate total non-current liabilities by subtracting current liabilities from total liabilities, and use ratios like debt-to-equity to assess your business's financial health.
• Managing non-current liabilities well helps you plan cash flow, protect borrowing capacity, and make confident decisions about growth.

What are non-current liabilities?

Non-current liabilities are debts or financial obligations your business is not required to pay off within the next 12 months. They represent the longer-term commitments that fund growth, operations, or major purchases.

You might also see them called long-term liabilities. The defining feature is the settlement timeline: if the amount isn't due within 1 year of the balance sheet date, it's classified as non-current.

For small business owners, understanding non-current liabilities helps you see how much of your business is funded by long-term debt. This matters when you're applying for finance, planning for the future, or assessing the overall health of your business.

Types of non-current liabilities

Several types of long-term obligations can appear on your balance sheet. Here are the most common non-current liabilities Australian small businesses encounter:

• Long-term loans: bank loans or business loans with repayment terms beyond 12 months, such as a 5-year term loan used to buy equipment or expand premises.
• Long-term leases: commercial property leases or equipment leases recognised under AASB 16. If your lease term extends beyond 12 months, the lease liability is non-current.
• Lines of credit: revolving credit facilities that aren't due for repayment within the year. These give your business flexible access to funds over a longer period.
• Deferred tax liabilities: amounts you owe to the ATO that arise from timing differences between your accounting records and your tax return. These are settled over future periods, not immediately.
• Bonds payable: debt instruments issued to investors, typically by larger businesses. The principal is repaid at a set maturity date, often years in the future.
• Provisions: reserves set aside for anticipated future costs, such as warranty obligations or restructuring expenses, where settlement is expected beyond 12 months.

Non-current liabilities vs current liabilities

The distinction between current and non-current liabilities comes down to when you need to pay. Current liabilities are obligations due within 12 months; non-current liabilities are due after that.

Current liabilities include things like trade payables (supplier invoices), short-term loans, tax obligations due this quarter, and employee entitlements like accrued wages. Non-current liabilities cover longer commitments: multi-year loans, long-term leases, and deferred tax balances.

A liability can shift from non-current to current as the due date approaches. For example, if you have a 5-year business loan and only 10 months of repayments remain, that portion moves to current liabilities on your balance sheet. This reclassification keeps your financial reporting accurate and helps you plan for upcoming cash outflows.

The split matters because lenders and investors look at both categories to understand your short-term liquidity and long-term financial commitments. A business with high current liabilities relative to its current assets may struggle to meet near-term obligations, while high non-current liabilities signal significant long-term commitments.

Non-current liabilities on the balance sheet

Your balance sheet shows a snapshot of everything your business owns and owes at a specific point in time. Non-current liabilities sit in the liabilities section, below current liabilities.

Under Australian Accounting Standards (AASB 101), liabilities are presented in order of when they fall due. Current liabilities appear first because they need to be settled sooner. Non-current liabilities follow, grouped by type: long-term borrowings, lease liabilities, deferred tax, and provisions.

The balance sheet equation is: assets equal liabilities plus equity. Non-current liabilities represent the portion of your business funded by long-term debt rather than by your own equity or short-term credit. A clear view of this section helps you understand the true financial position of your business.

How to calculate non-current liabilities

Calculating your total non-current liabilities is straightforward. You can also use a few key ratios to assess what those liabilities mean for your business.

To find your total non-current liabilities, use this formula:

Non-current liabilities = total liabilities - current liabilities

For example, if your total liabilities are $500,000 and your current liabilities are $150,000, your non-current liabilities are $350,000.

Once you know the figure, these ratios help you put it in context:

• Debt-to-equity ratio: total liabilities divided by total equity. This shows how much of your business is funded by debt compared to your own investment. A lower ratio generally signals less financial risk.
• Interest coverage ratio: earnings before interest and tax (EBIT) divided by interest expense. This tells you whether your business earns enough to comfortably cover its interest payments.
• Debt ratio: total liabilities divided by total assets. This shows what proportion of your assets is financed by debt. A ratio above 0.5 means more than half your assets are debt-funded.

Tracking these ratios over time gives you a clear picture of how your long-term debt is trending and whether your business is becoming more or less leveraged.

How non-current liabilities affect cash flow and business value

Non-current liabilities have a direct impact on your cash flow, borrowing capacity, and how others value your business. Understanding these effects helps you plan ahead.

Even though non-current liabilities aren't due within 12 months, they still require regular payments. Loan repayments, lease instalments, and interest charges all reduce the cash available for day-to-day operations. Forecasting these outflows is essential for keeping your cash flow healthy.

Lenders look at your non-current liabilities when you apply for new finance. High levels of existing long-term debt can reduce your borrowing capacity, because lenders want to see that you can service both your current and future obligations comfortably.

If you're looking to sell your business or bring in investors, non-current liabilities play a role in valuation. Buyers typically subtract total liabilities from total assets to estimate net value. Lower long-term debt generally makes your business more attractive, while significant non-current liabilities may reduce the price a buyer is willing to pay.

What can't be classified as non-current liabilities

Not every financial obligation qualifies as a non-current liability. Knowing what falls outside the category helps you avoid misclassifying items on your balance sheet.

• Short-term portions of long-term debt: if a loan repayment is due within 12 months, that portion must be reclassified as a current liability, even if the original loan term was several years.
• Contingent liabilities: potential obligations that depend on a future event, such as a pending lawsuit. Under Australian Accounting Standards, contingent liabilities are disclosed in the notes to the financial statements but are not recognised on the balance sheet unless the obligation is probable and the amount can be reliably estimated.
• Accounts payable and accrued expenses: supplier invoices and short-term accruals are always current liabilities because they're typically due within 30 to 90 days.
• Tax payable for the current period: income tax, GST, and PAYG obligations due this quarter or financial year are current, not non-current.

Getting the classification right matters for compliance and for giving an accurate picture of your financial position to lenders, investors, and the ATO.

Track your liabilities with Xero

Keeping on top of your liabilities doesn't have to mean hours spent in spreadsheets. Xero's cloud accounting software gives you a real-time view of your balance sheet, so you can see exactly what your business owes and when payments are due.

With customisable financial reports, you can break down your current and non-current liabilities at a glance and track how they change over time. Automated bank reconciliation and bill tracking help you stay accurate without manual data entry. Get one month free.

FAQs on non-current liabilities

Here are answers to frequently asked questions about non-current liabilities.

What is the difference between current and non-current liabilities?

Current liabilities are obligations due within 12 months, while non-current liabilities are due after 12 months. The distinction helps you and your stakeholders understand both your short-term liquidity and long-term financial commitments.

What are the most common examples of non-current liabilities?

The most common examples include long-term business loans, commercial property leases, deferred tax liabilities, and provisions for future costs like warranties. Lines of credit with repayment terms beyond 12 months also qualify.

How do non-current liabilities affect a small business's financial health?

High non-current liabilities increase your regular repayment obligations, which can reduce available cash flow. They also affect your debt-to-equity ratio and may limit your ability to access new finance.

Can a non-current liability become a current liability?

Yes. As the due date approaches and falls within 12 months, the liability is reclassified as current on your balance sheet. This commonly happens with the remaining balance of a long-term loan nearing its final repayment period.

How are non-current liabilities reported under Australian accounting standards?

Under AASB 101, non-current liabilities are presented separately from current liabilities on the balance sheet. They are grouped by type and listed below the current liabilities section, ordered by when they fall due.