GST and accounting on a cash basis

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?

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.

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.

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).