Private ruling: Changing accounting method
Published: May 2012

Ruling: Q1: From when are we required to commence accounting for GST on non-cash basis? | A1: You are required to cease accounting for GST on cash basis from the start of the income year in which you are no longer a small business entity. As you are no longer a small business, you are required to account for GST on non-cash basis from 1 July 2011.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. You are an entity carrying on an enterprise and are registered for the goods and services tax (GST). You elected to pay GST by instalments. On finalising your accounts for the financial year ending 2011, you became aware that your annual turnover is over $2 million and that you were no longer eligible to pay GST by instalment. You accounted on a cash basis for GST until the end of financial year 2011. You are now aware that you have to cease accounting on a cash basis. You do not have permission to continue to account on a cash basis.

Relevant legislative provisions: Section 29-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). | Section 29-50 of the GST Act | Division 159 of the GST Act. | Section 195-1 of the GST Act. | Section 328-110 of the Income Tax Assessment Act 1997

Reasons for decision: Summary: You must change to account on non-cash basis effective 1 July 2011. | Detailed Reasoning - Detailed reasoning: Subsection 29-40(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), states: You may choose to account on a cash basis, with effect from the first day of the tax period that you choose, if: · you are a *small business entity (other than because of subsection 328-110(4) of the *ITTA 1997) for the *income year in which you make your choice; or · you do not carry on a *business and your *GST turnover does not exceed the *cash accounting threshold; or · for income tax purposes, you account for income using the receipts method; or · each of the *enterprises that you *carry 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 under this section. (* denotes a term defined in section 195-1 of the GST Act) The term "small business entity" is defined in section 328-110 of the Income Tax Assessment Act 1997 as follows: You are a small business entity for an income year (the current year) if: · you carry on a *business in the current year; and · one or both of the following applies: · you carried on a business in the income year (the previous year) before the current year and your *aggregated turnover for the previous year was less than $2 million; · your aggregated turnover for the current year is likely to be less than $2 million. 'Aggregate turnover' is your annual turnover plus the annual turnover of any business entities you are connected with or are your affiliate. According to the information you provided, your aggregated turnover for the current financial year exceeds $2 million. As such you are no longer a small business entity. Paragraph 29-50(1)(a) of the GST Act states: You cease to *account on a cash basis if, in a case to which paragraph 29-40(1)(a) applied - you are not a *small business entity of the kind referred to in that paragraph for an *income year and you do not have permission to *account on a cash basis. In your case you are not a small business entity and you do not have permission to account on a cash basis. Therefore, you must account on non-cash basis. Paragraph 29-50(2)(a) of the GST Act states that the date of effect of your cessation is the first day of the next tax period to commence after the start of the income year referred to in paragraph 29-50(1)(a) of the GST Act. The first day of the tax period when you have to cease accounting on cash basis is, therefore, 1 July 2011. You must account for GST on non-cash basis from this date. | Detailed Reasoning - Attributing GST and input tax credits: If you change your GST accounting basis, there will be GST on some supplies and input tax credits on some acquisitions that would be attributed twice, not fully attributed or not attributed at all. Division 159 of the GST Act provides information on which tax periods to attribute any supplies and acquisitions that are affected by the change in your accounting basis, and how to treat bad debts if your accounting basis changes. Division 159 of the GST Act also provides examples. For further information refer to Goods and Services Tax Ruling GSTR 2000/13, and the examples in Division 159 of the GST Act which are available at our website www.ato.gov.au.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.