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ATO Interpretative Decision

ATO ID 2004/36 (Withdrawn)

Good and Services Tax

GST and accounting on a cash basis
FOI status: may be released
  • This ATO ID is withdrawn from the database as it contains a view in respect of a provision of the A New Tax System (Goods and Services Tax) Act 1999 that does not apply on or after 1 July 2007. This ATO ID is withdrawn for the period prior to 1 July 2007 as it a simple restatement of the law and does not contain an interpretative decision.
    This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Status of this decision: Decision Withdrawn 6 June 2008
CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.

Issue

Can the entity, a business operator that does not account for its income using the receipts method, continue to account for goods and services tax (GST) on a cash basis in accordance with a choice it made under section 29-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when its turnover increases so that it exceeds the cash accounting turnover threshold?

Decision

No, the entity cannot continue to account for GST on a cash basis in accordance with a choice it made under section 29-40 of the GST Act when its turnover increases so that it exceeds the cash accounting turnover threshold.

However, the entity can apply to the Commissioner for permission to account on a cash basis.

Facts

The entity is a business operator that does not account for its income using the receipts method. When the entity registered for GST its turnover was below $1,000,000 and it chose to account for GST on a cash basis.

The entity's turnover has now increased to over $1,000,000. The entity currently does not have permission from the Commissioner, in accordance with section 29-45 of the GST Act, to account for GST on a cash basis.

The entity's enterprise is not of a kind that the Commissioner has determined to be a kind of enterprise in respect of which a choice to account on a cash basis may be made. The entity is not a charitable institution, trustee of a charitable fund, a gift-deductible entity or a government school.

Reasons for Decision

Section 29-40 of the GST Act outlines when an entity can choose to account on a cash basis. Subsection 29-40(1) of the GST Act provides that an entity can choose to account on a cash basis if:

•
its annual turnover does not exceed the cash accounting turnover threshold. The cash accounting turnover threshold is $1,000,000 (paragraph 29-40(3)(a) of the GST Act); or
•
for income tax purposes, the entity accounts for its income using the receipts method; or
•
each of the enterprises that the entity carries on is an enterprise of a kind that the Commissioner determines, in writing, to be a kind of enterprise in respect of which a choice to account on a cash basis may be made.

When the entity registered for GST its turnover was below $1,000,000 and it chose to account for GST on a cash basis.

However, paragraph 29-50(1)(a) of the GST Act provides that an entity ceases to account on a cash basis if its annual turnover meets the cash accounting turnover threshold and it does not have permission to account on a cash basis. The entity's turnover has now increased and it exceeds $1,000,000. The entity currently does not have permission from the Commissioner to account for GST on a cash basis. Therefore, the entity cannot continue to account for GST on a cash basis in accordance with its choice made under section 29-40 of the GST Act.

The entity can apply to the Commissioner for permission to account on a cash basis. Section 29-45 of the GST Act provides that the Commissioner may permit an entity to account on a cash basis if:

•
it applies to the Commissioner in the approved form for permission to account on a cash basis, and
•
the Commissioner is satisfied that having regard to the nature and size of the enterprise that the entity carries on and the nature of the accounting system used and it is appropriate to permit the entity to account on a cash basis.

Note 1: The date of effect of the cessation to account on a cash basis is the first day of the next tax period to commence after the entity's annual turnover meets the cash accounting turnover threshold (subsection 29-50(2) of the GST Act).
Note 2: Division 159 of the GST Act outlines how to attribute GST on supplies and input tax credits on acquisitions that are affected by the change in an entity's accounting basis.
Note 3: Goods and Services Tax Ruling GSTR 2000/13 sets out the factors that the Commissioner will take into account in determining whether it is appropriate to permit an entity to account on a cash basis under section 29-45 of the GST Act.
Note 4: Any charitable institution, trustee of a charitable fund, a gift-deductible entity or a government school may choose to account on a cash basis whether or not they satisfy the provisions in subsection 29-40(1) of the GST Act (paragraph 29-40(2) of the GST Act).

Date of decision:  25 November 2002

Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
   section 29-40
   subsection 29-40(1)
   subsection 29-40(2)
   paragraph 29-40(3)(a)
   section 29-45
   paragraph 29-50(1)(a)
   subsection 29-50(2)
   Division 159

Related Public Rulings (including Determinations)
Goods and Service Tax Ruling GSTR 2000/13

Keywords
Goods and services tax
GST annual turnover
GST tax periods
Attribution rules
Cash basis

Business Line:  GST

Date of publication:  16 January 2004

ISSN: 1445-2782

history
  Date: Version:
  25 November 2002 Original statement
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