Choosing an accounting method
Small businesses with a turnover of less than $2 million can account for GST in their business on a cash or non-cash basis. Most larger businesses must use the non-cash method.
You advise us of your accounting method when you register for GST.
You don't have to use the same method for GST accounting and financial accounting, but it's usually easier if you do.
In this section:
Accounting for GST on a cash basis
If you use the cash method, you account for GST on sales and purchases when payment is made. So for a particular reporting period you include in your BAS the payments you received for your sales and the amounts you paid for your purchases (provided you have tax invoices for your purchases).
The advantage of cash accounting is that the money flowing through your business is better aligned with your BAS liabilities, so it's easier to manage your cash flow.
Sales
You account for the GST payable on the sales you make in the same reporting period you receive payment for them. If you receive only part payment for a sale in a reporting period, you only account for the GST on the part payment in that reporting period.
Purchases
You claim GST credits for your business purchases in the reporting period you pay for them, provided you have a tax invoice. If you pay only part of the cost of a business purchase in a reporting period and have a tax invoice, you claim only the GST credit for that part of the cost in the reporting period.
Eligibility for cash accounting
You can account for GST on a cash basis 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 $2 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 - a government school, endorsed charitable institution or trustee of an endorsed charitable fund. Gift-deductible entities are also eligible unless the entity operates a fund, authority or institution that can receive tax deductible gifts or contributions (see GST concessions - Tax basics for non-profit organisations).
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If you do not fit into any of these categories, you can ask to be allowed to account for GST on a cash basis. Find out more:
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Example: Accounting for GST on a cash basis
Joe's Wholesale Books and Bill's Bookshop are both GST-registered businesses that use the cash accounting method.
Joe's Wholesale Books sells books to Bill's Bookshop and issues a tax invoice on 17 December. Bill's Bookshop pays the invoice on 14 January.
If Joe's Wholesale Books reports GST:
- monthly, it would account for the GST in the month the GST is collected, that is, on its January BAS (due 21 February)
- quarterly, it would account for the GST in the quarter the GST is collected, that is, on its March quarter BAS (due 28 April).
If Bill's Bookshop reports GST:
- monthly, it would claim a GST credit in the month it paid for the books, that is, on its January BAS (due 21 February)
- quarterly, it would claim a GST credit in the quarter it paid for the books, that is, on its March quarter BAS (due 28 April).
Accounting for GST on a non-cash basis
If you use the non-cash method, you generally account for GST when the relevant invoice is issued. So for a particular reporting period you generally include in your BAS the sales for which you issued invoices and the purchases for which your suppliers issued invoices.
If you receive a payment before issuing the invoice, you must include the full GST amount in the reporting period that the payment happened.
Sales
You account for the full amount of GST payable on a sale in the reporting period you issue an invoice or receive any part of the payment, whichever happens first.
Purchases
You must hold a tax invoice for a purchase to claim a GST credit. So you claim a GST credit in the reporting period your supplier issues the invoice.
Example: Accounting for GST on a non-cash basis
Angus, a GST-registered carpenter, builds some shelves for Belinda, a GST-registered newsagent, and issues a tax invoice for the work on 15 January. The newsagent pays the invoice on 14 February. Both businesses use the non-cash method of accounting.
If Angus reports GST:
- monthly, he accounts for the GST in the month he issues the invoice, that is, on his January BAS (due 21 February)
- quarterly, he accounts for the GST in the quarter he issues the invoice, that is, on his March quarter BAS (due 28 April).
If Belinda reports GST:
- monthly, she claims a GST credit in the month the invoice is issued, that is, on her January BAS (due 21 February)
- quarterly, she claims a GST credit in the quarter the invoice is issued, that is, on her March quarter BAS (due 28 April).
Simplified accounting methods for food retailers
Some 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 for food retailers.
Sections within Accounting for GST in your business
Last Modified: Monday, 3 December 2012