There are two methods of accounting for GST: a cash basis and a non-cash basis (accruals).
The method you use will affect when you must report GST.
Businesses with an aggregated turnover (your business's turnover and the turnover of closely associated entities) of less than $10 million, or who use cash accounting for income tax, can use either method. Most larger businesses must use the non-cash method.
Find out about:
- Accounting for GST on a cash basis
- Accounting for GST on a non-cash basis
- Simplified accounting for food retailers
- How to change accounting methods
Businesses using cash, accounting or simplified accounting methods are still eligible for Simpler BAS reporting if their GST turnover is less than $10 million.
Accounting for GST on a cash basis
Businesses with an aggregated turnover of less than $10 million can choose to account for their GST 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 method is that the money flowing through your business is better aligned with your activity statement liabilities, so it's easier to manage your cash flow.
You can use the cash accounting method if any of the following applies:
- you are a small business entity – that is, 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 account for income tax on a cash basis
- you run a kind of enterprise we have agreed can account for GST on a cash basis regardless of your GST turnover, that is
- a government school
- an endorsed charitable institution or trustee of an endorsed charitable fund
- a gift-deductible entity (unless it operates a fund, authority or institution that can receive tax-deductible gifts or contributions).
If you do not fit into any of the above categories, you can ask to be allowed to account for GST on a cash basis.
- Cash or accruals basis
- GST definitions
- Working out your GST turnover
- Concessions for small business entities
- GST concessions – Tax basics for not-for-profit organisations
You account for the GST payable on the sales you make in the reporting period in which you receive payment for them.
If you receive only part payment for a sale in a reporting period, you only account for the GST in the part of the payment you received.
You account for GST credits on your purchases in the reporting period in which payment is made. You must have a tax invoice before you can claim a GST credit, except for purchases costing $82.50 or less.
It is to your advantage to claim your GST credits in the reporting period in which you make the purchases they relate to, but you are not obliged to. You have four years to claim credits.
If you pay only part of the cost of a business purchase in a reporting period, you claim only the GST credit for the part of the cost you paid.
Accounting for GST on a non-cash basis
Most larger businesses must use the non-cash accounting method. Small businesses can choose to use either the cash method or the non-cash 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 (for a sale) or received the invoice from your supplier or made any payment (for a purchase).
You account for the GST payable on the sales you make in the reporting period in which you issue a tax invoice or receive full or part payment, whichever happens first.
This means that if you receive a payment before issuing the tax invoice, you must include the GST amount in the reporting period in which the payment happened, even if it is not the period you issue the invoice.
You must have a tax invoice for a purchase before you can claim a GST credit.
It is to your advantage to claim your GST credits in the reporting period in which you either receive the tax invoice from your supplier or make some payment (whichever comes first) – but you are not obliged to. You have four years to claim credits.
Simplified accounting for food retailers
Small food retailers such as bakeries, milk bars and convenience stores make both taxable and GST-free sales.
If you don't have adequate point-of-sale equipment to account for taxable and GST-free sales, you can report your sales and purchases using the GST simplified accounting methods (SAM) for food retailers. The simplified method uses pre-calculated business norms percentages for different types of food retailers.
Find out about:
- Simplified GST accounting methods for food retailers - in detail
- Business norms percentages No. 1 – hot bread shops
- Business norms percentages No. 2 – convenience stores that convert food
- Business norms percentages No. 3 – convenience stores that do not convert food
- Business norms percentages No. 4 – fresh fish retailers
- Business norms percentages No. 5 – rural convenience stores
- Business norms percentages No. 6 – pharmacies
- Business norms percentages No. 7 – cake shops
- Business norms percentages No. 8 – health food shops
- Business norms percentages No. 9 – continental delicatessens
How to change accounting methods
If you are eligible to change accounting methods, you can contact us or ask your accountant to contact us on your behalf.
Changing from the cash method to the non-cash method can only take effect on the first day of a tax period.
In the first tax period after the change, you will need to account for sales or purchases that you have not previously accounted for or claimed.
This means that in the first tax period you use the non-cash method you need to:
- report the GST on any sales for which you had issued invoices before the date of the change but had not yet received payment
- account for the balance of GST on any sales that had been partly accounted for before the change.
You are also eligible to claim any unclaimed GST credits that you hold a tax invoice for in that first tax period.
Last modified: 30 Jun 2017 QC 22440