When you are registered for GST, you have to pick an accounting method. It decides which BAS you report a sale or purchase on, so it can make a real difference to your cash flow.
The two methods
The ATO recognises a cash method and a non-cash (accruals) method. Under the cash method, you report GST in the period you receive or make the payment. Under the non-cash method, you report it when you issue or receive an invoice, whether or not money has moved.
Businesses with an aggregated turnover under $10 million, or those that use cash accounting for income tax, can choose either method. Your income tax method and your GST method are chosen separately, so do not assume one decides the other.
Why it matters
- Slow-paying customers. On the non-cash method you can owe GST on an invoice that has not been paid yet. The cash method avoids that.
- Large purchases. The cash method can delay the GST credit until you actually pay the supplier, which may hurt if you often buy ahead of being paid.
- Consistency. Reporting in line with how your books are kept reduces errors on the BAS.
What to do
- Check which method you use now. Your accountant or BAS agent can confirm it.
- Look at your debtors. If unpaid invoices regularly stretch past 30 days, ask whether the cash method would suit you better.
- Time any change carefully. The ATO says switching from cash to non-cash can only take effect from the first day of a tax period.
- Make sure your software matches. Set your accounting software to the same method you report on.
- Get advice first. Changing method can have knock-on effects, so talk to your accountant before you switch.
No method is cheaper overall, but the right one can stop you funding the ATO out of your own pocket.