Cash vs accrual GST: Understanding your GST accounting method
When you register for GST, one of the key choices you make is how you account for GST. This affects when you report GST on sales and when you can claim GST credits on business expenses in your Business Activity Statement (BAS).
For many small businesses, the decision comes down to cash basis versus non-cash (accruals) basis. Here is what each method means, and how to choose the right one for your situation.
What is cash basis GST?
Cash basis GST (also called cash accounting) means you report GST based on when money is actually received or paid.
Under this method:
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You generally report GST on sales when you receive payment (including part-payments).
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You generally claim GST credits on purchases when you pay your supplier, but you may need to hold a valid tax invoice before claiming (where required).
This approach can help with cash flow because you are not usually paying GST on sales you have not been paid for yet.
What is accrual GST?
Accrual GST is commonly referred to as the non-cash method.
With non-cash (accruals) GST:
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You report GST on sales in the BAS period when you issue a tax invoice.
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You claim GST credits on purchases in the BAS period when you receive a supplier invoice.
This method suits businesses that want reporting that better matches income and expenses to the period the transaction relates to, even if cash is received or paid later.
Cash basis vs accrual GST: What’s the difference?
The difference is mainly timing.
| Cash basis (cash accounting) | Accrual (non-cash) | |
|---|---|---|
| GST on sales | Report when payment is received | Report when invoice is issued |
| GST credits on purchases | Claim when you pay (tax invoice rules may apply) | Claim when invoice is received (tax invoice rules may apply) |
In most cases, the total GST you report over time is similar, but the timing can be very different, which is why your choice matters for cash flow.
Who can use the cash basis for GST?
You can use the cash basis if you meet the eligibility rules. Common situations include:
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Aggregated turnover under $10 million (if it’s over $10 million, you must use the non-cash method).
- You account for income tax on a cash basis.
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Certain not-for-profits and similar entities may be able to use cash accounting regardless of turnover (subject to the specific rules).
If you are unsure which method applies, it’s worth checking before you lodge your first BAS, because changing later can require careful handling to avoid errors.
Why many small businesses choose cash basis GST
Cash basis GST is popular because it aligns GST obligations with real cash movement.
Common benefits include:
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Improved cash flow, because GST is generally reported when income is actually received.
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Less pressure from unpaid invoices.
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Simpler tracking for businesses with straightforward income and expenses.
Example
If you issue a $11,000 invoice in June (including $1,000 GST) and the customer pays in August:
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Cash basis: the GST is generally reported in the BAS period that covers August, when you receive the payment.
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Accrual (non-cash): the GST is generally reported in the BAS period that covers June if the invoice was issued then.
When cash basis GST may not be the best option
Cash basis GST may be less suitable if:
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Your invoices are paid quickly, so the cash flow benefit is minimal.
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You want financial reporting that recognises income and expenses when they are incurred (not when cash moves).
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You deal with larger contracts, progress payments, or more complex billing where non-cash reporting gives clearer visibility.
A note on GST credits and tax invoices
Whichever method you use, keep in mind:
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For many purchases over $82.50 (including GST), you generally need a valid tax invoice before claiming the GST credit.
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If you claim GST credits without the right records, you may need to fix the BAS later.
Changing your GST accounting method
You can change your GST accounting method, but you should do it carefully:
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Make sure you are eligible to use the new method.
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Update your GST details so your BAS reporting aligns with the new method.
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Apply the change correctly to avoid double-counting or missing GST (this is where mistakes commonly happen, especially around the changeover period).
Getting your GST method right from the start
Choosing cash or accrual GST affects your BAS timing, cash flow, and record-keeping. Picking the wrong method (or applying it inconsistently) can lead to BAS errors and unexpected GST outcomes.
GST Register can help you register for GST online and ensure your GST registration details reflect the right accounting method for your situation.
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