Regulatory authorities have stipulated two methods of accounting for GST: one is the cash basis and another one a non-cash basis (accruals). Whichever way you use it will affect when you report GST. Organizations with an average turnover of less than $10 million including all your entities, which use cash accounting for income tax, can use either method. Larger businesses must use the non-cash method. Businesses using cash, accounting or simplified accounting methods are eligible for Simpler BAS reporting if their GST turnover is less than $10 million.
Accounting on a cash basis
Organizations with an average turnover of less than $10 million can choose to account using the cash accounting method. Accounting on a cash basis means you account for GST on the business activity statement that covers the period in which you receive or make payment for your sales and purchases. The advantage of the cash accounting system is that the money flowing through business is aligned in a more organized way with your activity statement liabilities, and is easier to manage your cash flow. You can use the cash accounting method if any of the following applies:
• You are an individual, partnership, trust or company with an aggregated turnover of less than $10 million
• You are not carrying on a business, but your enterprise’s ‘GST turnover’ is $2 million or less
• You already account for income tax on a cash basis
• You run an enterprise like that of a government school
• A charitable institution or trustee of an endorsed charitable fund
• A gift-deductible entity
If you don’t fit into any of these categories, you can prefer to be allowed to account for GST on a cash basis.
Accounting on a non-cash basis
Larger corporations must use the non-cash accounting method. Using the non-cash method means you account for GST on the business activity statement that covers the period in which you issued the tax invoice or received any payment or received the invoice from your supplier or made any payment.
How to change accounting systems
If you are eligible to change accounting systems, you can contact us (Reliable Bookkeeping Services) or ask your accountant in Melbourne for more details. Changing the reporting from cash method to non-cash method effects the first day of a tax period only. In the first tax period after the change, you will need to account for sales or purchases that you have not previously accounted. This means that in the first tax year you can use the non-cash method you need to:
• Report GST on any sales for which you had issued invoices before the date of the change but had not received payment
• Account the balance of GST on sales that had been accounted for the change.
• You are eligible to get the unclaimed GST credits (if any) that you hold a tax invoice in that first tax period.
We provide answers to your questions and a range of other services to help you meet your GST obligations. You can also write to us for information.