Choosing the right GST accounting method affects when GST is reported on your business activity statement (BAS), how quickly you can claim input tax credits and how easily your GST obligations align with cash flow. For many Australian small businesses, the choice comes down to cash accounting or non-cash accounting.

Neither method changes whether a sale is taxable, GST-free or input taxed. It changes the timing of when GST and input tax credits are attributed to a tax period. Understanding that timing is important, particularly if your business invoices customers before they pay, buys on supplier credit or is experiencing growth.

The two GST accounting methods in plain English

For GST purposes, businesses generally account on either a cash basis or a non-cash basis.

Cash accounting means GST is generally reported when money is received from customers and input tax credits are generally claimed when suppliers are paid. If a customer pays an invoice in instalments, the GST is generally reported progressively as those payments are received.

Non-cash accounting is often described as an accruals-style method for GST. GST on a taxable sale is generally attributed to the earlier of:

  • when you receive any payment for the sale; or

  • when you issue an invoice relating to the sale.

Similarly, an input tax credit on a creditable purchase is generally attributed to the earlier of:

  • when you make any payment for the purchase; or

  • when the supplier issues an invoice.

There are important documentary requirements for claiming input tax credits, including holding appropriate tax invoices where required. Good record keeping remains essential under either method.

The key practical difference is straightforward. Under cash accounting, an unpaid customer invoice generally does not create a GST liability yet. Under non-cash accounting, issuing the invoice can trigger the GST liability even if the customer pays later.

How cash accounting works

Cash accounting is often attractive to businesses that need their BAS obligations to follow the money actually moving through the bank account.

Imagine a sole trader completes work near the end of a BAS period and sends an invoice to the customer. The customer does not pay until the following period. If the sole trader accounts for GST on a cash basis, the GST on that sale is generally reported in the later period when payment is received, rather than in the period when the invoice was issued.

The same principle applies to purchases. If the business receives a supplier invoice but pays it later, the input tax credit is generally claimed as the payment is made. Where only part of an invoice is paid, the GST treatment generally follows that proportion of the payment.

This can provide a clearer link between GST reporting and available cash. It can be particularly useful for businesses that:

  • regularly wait for customers to pay;

  • invoice for services before receiving payment;

  • deal with staged customer payments;

  • have limited working capital;

  • operate with relatively simple debtor and creditor arrangements; or

  • prefer BAS reporting that broadly reflects their bank activity.

However, cash accounting does not remove the need to monitor unpaid invoices. Outstanding debtors still matter for cash flow, profitability, collections and business planning, even where GST is not yet payable on those amounts.

How non-cash accounting works

Non-cash accounting brings GST reporting closer to when transactions are invoiced or otherwise recognised, rather than when funds are ultimately received or paid.

For taxable sales, GST is generally attributed when an invoice is issued, unless payment is received first. This means a business may need to include GST on its BAS before it has collected the full amount from the customer.

For purchases, an eligible input tax credit may generally be attributable when the supplier invoice is issued, rather than when the business pays it. This can bring forward the timing of a GST credit, subject to the normal rules for creditable acquisitions and supporting records.

Non-cash accounting may suit businesses that:

  • maintain detailed debtor and creditor records;

  • use accounting software that tracks invoices and bills reliably;

  • have stable cash flow and established credit control processes;

  • need management reports that show income and expenses when they are earned or incurred; or

  • have more complex inventory, project or supplier arrangements.

It is important not to assume that non-cash accounting is automatically “better” because it may bring forward input tax credits. It can also bring forward GST liabilities on customer invoices that remain unpaid. The right choice depends on the overall timing of sales, purchases, payment terms and cash reserves.

Who can choose cash accounting for GST?

The GST law allows an entity to choose cash accounting in several circumstances.

One common pathway is being a small business entity for the relevant income year. Broadly, this involves carrying on a business and satisfying the small business entity tests, which use aggregated turnover. The current aggregated turnover threshold used in those tests is less than $10 million, subject to the detailed legislative rules about previous-year turnover, likely current-year turnover and connected entities or affiliates.

Other pathways may apply where:

  • the entity does not carry on a business and its GST turnover does not exceed the cash accounting turnover threshold, currently $2 million;

  • the entity accounts for income tax using the receipts method; or

  • each enterprise it carries on is of a kind covered by a written determination allowing cash accounting.

The Commissioner may also permit an entity to account on a cash basis after an application in the approved form. In considering an application, the nature and size of the enterprise, and the accounting system used, are relevant considerations.

Eligibility should be reviewed carefully where a business has related entities, common ownership, trusts, partnerships or corporate structures. Aggregated turnover is not always limited to the turnover shown in one entity’s own profit and loss statement.

A business that has chosen cash accounting may also need to stop using it if it no longer meets the relevant conditions and does not have permission to continue. This is one reason why GST reporting settings should be reviewed as a business grows, restructures or acquires new operations.

Cash accounting versus non-cash accounting: the practical trade-offs

The decision is not simply about making a BAS payment later or claiming a refund earlier. It is about choosing a method that produces reliable reporting without creating avoidable pressure on cash flow.

Cash accounting may be more suitable when

  • customers commonly pay after the invoice date;

  • the business has uneven or seasonal cash flow;

  • there are frequent part-payments or progress payments;

  • debtor collection can take time;

  • the business is service-based and has limited inventory; or

  • the owner wants GST liabilities to be more closely aligned with receipts.

The main advantage is timing. A business is less likely to have to fund GST on income it has not collected.

The trade-off is that input tax credits on unpaid supplier invoices are generally deferred until payment is made. If the business has substantial expenses on credit terms, this may affect the timing of GST credits.

Non-cash accounting may be more suitable when

  • the business has sound cash reserves;

  • invoices are collected quickly and consistently;

  • robust accounting systems and reconciliations are already in place;

  • management needs timely debtor and creditor reporting;

  • the business regularly receives supplier invoices before payment; or

  • commercial reporting is already prepared on an accruals basis.

The potential benefit is that input tax credits may be available earlier than under cash accounting, provided the relevant conditions are met.

The trade-off is that GST may become payable when invoices are issued, even if customers delay payment or a debt later becomes difficult to recover. Businesses using non-cash accounting need disciplined invoicing, collection and cash-flow forecasting processes.

Do not confuse GST accounting with income tax accounting

GST accounting method and income tax accounting method are related concepts, but they are not the same choice.

For GST, the question is when GST and input tax credits are attributed to BAS periods. For income tax, the question is generally when income is derived and when deductions are incurred under the relevant tax rules.

A business may use a cash basis for GST and still prepare financial statements or income tax calculations using methods that recognise income and expenses differently. The ATO’s public ruling on cash accounting confirms that a business can account for GST on a cash basis while accounting for income tax on a non-cash basis.

This distinction matters because business owners sometimes expect their BAS result, accounting software profit figure and income tax position to match perfectly. They may not. Each calculation serves a different purpose and follows different rules.

For that reason, it is helpful to keep the following records up to date:

  • sales invoices and customer receipts;

  • supplier bills and payment records;

  • tax invoices and adjustment notes;

  • bank reconciliations;

  • accounts receivable and accounts payable reports;

  • records of deposits, refunds, credit notes and bad debts; and

  • documents supporting whether purchases are creditable acquisitions.

Reliable records make it easier to prepare BAS statements accurately, identify GST adjustments and understand whether the business is carrying unpaid customer debts or supplier obligations.

Changing GST accounting methods requires planning

A change between cash and non-cash accounting should not be treated as a simple software setting update. The GST law contains transition rules designed to prevent transactions from being omitted, duplicated or attributed to the wrong tax period.

For example, when a business stops accounting on a cash basis, there may be invoices issued in an earlier period that have not yet been paid. Special rules can bring GST on those outstanding amounts, as well as relevant input tax credits and adjustments, into the transition period.

Conversely, when a business starts using cash accounting, GST and input tax credits that were already attributable under the non-cash method generally remain in the earlier periods. The change does not allow the same transaction to be reported twice.

Bad debts can also require particular attention. The treatment may differ depending on the accounting basis used when the original GST or input tax credit was attributed, and whether a debt is written off or later recovered.

Before changing methods, consider:

  • whether you are eligible to use the cash basis;

  • the first day of the tax period from which the change should take effect;

  • unpaid sales invoices and supplier bills at the transition date;

  • deposits, progress claims, retentions and credit notes;

  • any bad debts or disputed customer balances;

  • whether your accounting software is configured correctly; and

  • how the change will affect cash-flow forecasts and BAS preparation.

A review before the transition period is usually much easier than trying to correct a BAS after lodgment.

A simple way to decide which method suits your business

The most useful starting point is to look at your payment cycle rather than choosing based on a general preference for “cash” or “accruals”.

Ask these questions:

  • How long do customers usually take to pay?

  • Do you commonly issue invoices before receiving payment?

  • Do suppliers give you payment terms?

  • Would paying GST before collecting customer invoices create cash-flow pressure?

  • Do you have reliable debtor and creditor records?

  • Are there related entities that affect your aggregated turnover position?

  • Is the business growing quickly or changing its structure?

  • Does the accounting software accurately report GST on the method selected?

A consultant or trades business that invoices clients on extended terms may value the cash-flow alignment of cash accounting. By contrast, a business with prompt-paying customers, reliable systems and regular supplier invoices may find non-cash accounting better reflects its operational reporting.

There is no universal answer. The method should fit the business’s eligibility, cash flow, record keeping and commercial practices.

The key takeaway

Cash and non-cash GST accounting methods determine when GST is reported and when input tax credits can generally be claimed. Cash accounting can better align BAS obligations with payments received and made, while non-cash accounting can align GST reporting more closely with invoicing and broader accrual-based business records.

The choice can have a meaningful impact on working capital, BAS accuracy and the treatment of unpaid invoices during periods of growth or change. Reviewing your method regularly is sensible, especially if turnover, business structure or payment terms have changed.

This article is general information only and is not personal financial or tax advice. GST rules can apply differently depending on your business structure, turnover, transactions and records. Speak with a registered tax agent or accountant, such as, for advice tailored to your circumstances.