On the cash method you report GST when money is actually received or paid. On the accruals (non-cash) method you report GST when the invoice is issued or received, whichever comes first. Businesses with an aggregated turnover under $10 million can generally choose. Cash accounting usually suits businesses whose customers pay slowly.

Most business owners inherited their GST method from whoever set up their file years ago and have never revisited it. That is a mistake, because for a business carrying a large debtors ledger the choice is worth real money in the bank every single quarter.

I am Mina Baselyous, a Certified Practising Accountant (CPA), Chartered Tax Advisor (CTA) and Registered Tax Agent in Melbourne. This article explains how each method works, who is eligible for the cash method, what the difference looks like in dollars on a real quarter, and how to change if the wrong one is costing you.

What the Two Methods Actually Mean

The two methods change the timing of when GST hits your business activity statement, not the total amount of GST you eventually pay. Cash accounting follows the money. Accruals accounting follows the paperwork. Over the life of the business the two produce the same result, but the cash flow consequences quarter by quarter can be substantial.

The Cash Method

Under the cash method you account for GST on the activity statement covering the period in which you receive or make payment. You report GST on a sale in the reporting period in which you receive the payment, and you claim GST credits on a purchase in the reporting period in which you make the payment. An unpaid customer invoice creates no GST liability at all.

The Accruals or Non-Cash Method

Under the non-cash method the trigger is the invoice. As the ATO states in its choosing an accounting method guidance, current as at September 2026, you account for the GST payable on the sales you make in the reporting period in which you issue a tax invoice or receive full or part payment, whichever happens first.

The same logic runs the other way on purchases. You claim GST credits in the period you receive the supplier’s invoice or make the payment, whichever happens first. So you can claim credits on bills you have not yet paid, which is the main advantage of the method.

Worked Example: The Same Quarter on Both Methods

The cleanest way to see this is to run one quarter twice. Take a business that invoices $330,000 including GST during the quarter but only collects $220,000 of it, and receives supplier invoices of $110,000 including GST of which it pays $88,000. Same business, same quarter, two very different BAS outcomes.

On the Accruals (Non-Cash) Method

• GST on sales: based on invoices issued, $330,000 divided by 11 = $30,000
• GST credits on purchases: based on invoices received, $110,000 divided by 11 = $10,000
• Net GST payable for the quarter: $20,000

On the Cash Method

• GST on sales: based on cash received, $220,000 divided by 11 = $20,000
• GST credits on purchases: based on cash paid, $88,000 divided by 11 = $8,000
• Net GST payable for the quarter: $12,000

The business keeps $8,000 more in its bank account this quarter on the cash method. Note the calculation method in both cases: these are GST inclusive figures, so the GST is one eleventh of the amount, not 10 per cent of it. Dividing a GST inclusive figure by 11 and multiplying a GST exclusive figure by 10 per cent give different answers, and mixing them up is one of the most common BAS errors we correct.

Is the $8,000 permanent? No. It is timing. When the outstanding $110,000 is collected next quarter, the GST on it falls due then. The advantage is that you never fund the ATO ahead of your customers. The exception is the one that matters: if that invoice is never paid at all, a cash basis business never remits the GST in the first place, while an accruals business has to remit it and then claim it back later as a bad debt adjustment.

We walk through that bad debt adjustment, and the income tax deduction that goes with it, in our guide to debtor management and writing off bad debts.

Who Can Choose the Cash Method?

Not everyone gets the choice. The ATO allows the cash method for businesses with an aggregated turnover of less than $10 million, for entities that account for income tax on a cash basis, and for enterprises that are not carrying on a business with a GST turnover of $2 million or less. Certain entities, including government schools and endorsed charities, can use it regardless of turnover.

Those thresholds are set out in the ATO’s accounting method guidance, current as at September 2026. Aggregated turnover is not just your own turnover: it includes the turnover of connected entities and affiliates, so a group of related trading companies can lose the choice even where no single entity is near $10 million. If you operate through multiple entities, check the aggregation before you assume you are eligible.

If you are not yet registered for GST at all, start with our guide to GST registration in Australia, because the method question comes up at registration and the default you accept then tends to stay in place for years.

When the Cash Method Wins

Cash accounting suits any business where money goes out well before it comes in. If you invoice on 30 day terms and get paid on 50, if you carry a large debtors ledger, or if you have had bad debts in the past, the cash method stops you funding the ATO on revenue you have not collected. It is the default answer for most service businesses with slow paying customers.

• Slow paying customers. Construction, professional services, labour hire and anyone billing large corporates or government.
• A history of bad debts. On cash you never remit GST on an invoice that is never paid, so there is no adjustment to chase later.
• You pay your suppliers quickly. If you pay on time anyway, you lose very little by only claiming credits when you pay.
• Simplicity. Reconciled bank transactions drive the BAS, so there is less to get wrong.
• Tight working capital. If the business is growing fast and cash is the constraint, the timing benefit is real. Our guide to working capital explains why growth consumes cash rather than creating it.

When Accruals Wins

Accruals accounting wins where you buy on credit and sell for cash, or where you need your reports to reflect what the business actually earned rather than what happened to clear the bank. Retailers, hospitality and any business taking payment at the point of sale while running 30 day accounts with suppliers are usually better off on accruals.

• You get paid immediately but pay suppliers later. You claim the credits on supplier invoices before you have paid them, which is a genuine cash benefit in reverse.
• Large capital purchases on terms. The credit can be claimed when the invoice is received rather than when the final payment clears.
• Better management reporting. Accruals reporting matches revenue to the period it was earned, which is what makes a profit and loss statement meaningful month to month.
• Turnover above the threshold. Once aggregated turnover reaches $10 million the choice is generally gone anyway.

In practice, says Mina Baselyous (CPA, CTA, Registered Tax Agent), the business that suffers most is the one on accruals with 60 day debtors and no idea that a choice exists. They spend years paying GST a quarter early, then borrow to cover the gap and call it a cash flow problem.

There is one more consideration that has nothing to do with cash. Accruals reporting produces better information, and better information is what a buyer, a bank or a valuer wants to see. If you are building towards a sale, our guide to how to value a business in Australia explains why the quality of your reporting affects the number.

Your GST Method and Your Income Tax Method Are Two Different Questions

This is the point that confuses most business owners. Choosing the cash method for GST does not mean you return income on a cash basis for income tax. They are separate decisions under separate rules, and for most trading businesses the income tax answer is not a choice at all.

For income tax, whether you return income on a receipts basis or an earnings basis depends on which method gives a substantially correct reflex of your income, a question the Commissioner addresses in Taxation Ruling TR 98/1. Broadly, a business whose income depends on trading stock, employees and substantial capital is generally on an earnings basis, while some individual professionals providing personal services may be on a receipts basis.

The practical consequence matters. A trading company can be on the cash method for GST and still be assessed on an earnings basis for income tax, which means it is taxed on invoiced sales even though its BAS follows the bank account. If that is your situation, the bad debt rules become important, and you should read them alongside this article.

How to Change Your GST Method

You can change methods if you are eligible, but you cannot do it mid quarter. The ATO’s position is that changing from the cash method to the non-cash method can only take effect on the first day of a tax period, and in the transition you must account for previously uninvoiced sales and unclaimed credits so nothing is counted twice or missed.

Practically, the steps are:

• Confirm eligibility. Check aggregated turnover including connected entities and affiliates.
• Model both methods. Run the last four quarters on each basis using your actual debtors and creditors. The right answer is usually obvious once it is in dollars.
• Pick the changeover date. It must be the first day of a tax period, so the start of a quarter or a month depending on your reporting cycle.
• Handle the transition. Identify the sales and purchases straddling the changeover so the GST on each is reported once and only once. This is where the errors happen.
• Change the setting in your software and tell your adviser. Changing the setting in Xero or MYOB without adjusting for the straddling transactions will produce a wrong BAS.

Get the transition wrong and you either double count GST or miss a quarter of it, and the error usually surfaces at year end when the BAS figures will not reconcile to the accounts. It is not complicated work, but it does need to be done deliberately. If you are lodging in Xero, our guide to lodging your BAS using Xero covers the mechanics, and GST coding explained covers the coding errors that distort either method.

How to Decide

Answer three questions. How long does it actually take your customers to pay you? How long do you take to pay your suppliers? And is aggregated turnover across your group under $10 million? If customers are slower than suppliers and you are under the threshold, the cash method is probably costing you nothing and saving you a quarter’s worth of GST timing.

Then keep the two jobs separate in your head. Use the method that suits your cash position for GST reporting, and keep producing accrual based management reports so you can still see what the business actually earned. That is standard practice in any Virtual CFO engagement: the BAS follows the rules, the management pack follows the economics.

If you are not sure what your current method even is, look at your last BAS or ask whoever lodges it. It is also worth reading why we think your accountant rather than your bookkeeper should lodge your BAS, since decisions like this one rarely get raised at the bookkeeping level. For background on the statement itself, see what a BAS is and what an IAS is.

Frequently Asked Questions

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