Private ruling: Changing accounting method
Published: June 2012
Ruling period: Not applicable
Date scheme commenced: Not applicable

Ruling: Q1: 1. Can we change our accounting basis to non-cash from 1 January 2012? 2. If not, can we cancel our GST registration and re-register to enable us to account on non-cash basis from 1 January 2012? 3. Can we change our accounting basis by submitting the activity statement based on the desired accounting method? | A1: 1. Yes. You can change your accounting basis to non-cash from 1 January 2012. 2. As the answer to Question 1 is yes, no response is required for this question. 3. As the answer to Question 1 is yes, no response is required for this question.

Relevant facts and circumstances: You are carrying on an enterprise and are registered for the goods and services tax (GST). You report your GST obligations on a quarterly basis. Your projected annual turnover is over $2 million. By mistake you chose to account on cash basis for GST. However, your intention was to account on non-cash basis. You purchase equipment to carry on your enterprise on hire purchase basis. Your business structure and cash flow is based on accounting for GST on non-cash basis. Although you mistakenly chose to account on a cash basis, you prepared your quarter activity statement on non-cash basis. The Australian Taxation Office (ATO), on an audit carried out, rejected your accounting basis and calculated your GST obligations on a cash basis. The ATO auditor advised you to contact GST Registrations division to change the accounting method and resolve any issue relating to back dating the accounting method. GST Registrations advised you that your accounting basis cannot be backdated to 1 January 2012, but changed your accounting basis to non-cash from a later date. You wish to backdate the accounting basis to non-cash from start of your business activity to enable you to claim input tax credit on hire purchase equipment.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 section 29-50.

Reasons for decision: Summary: According to subsection 29-40 (1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), 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 with an annual turnover (including the turnover of your related entities) of less than $2 million · you are not operating a business, but are carrying on an enterprise with a GST turnover of $2 million or less · you account for income tax on a cash basis · you carry on a kind of enterprise the Tax Office has determined is able to account for GST on a cash basis regardless of your GST turnover · you are an endorsed charitable institution, trustee of an endorsed charitable fund, gift-deductible entity or government school, regardless of your GST turnover. However, your projected turnover is over $2 million. Therefore, you cannot choose to account on a cash basis. Under paragraph 29-50(3)(a)(i) of the GST Act, the Commissioner must revoke any permission for you to account on a cash basis if the Commissioner is satisfied that you are carrying on a business but you are not a small business entity (other than because of subsection 328-110(4) of the ITAA 1997)) for an income year. The facts show that you are not a small business as your projected annual turnover is over $2 million. Therefore the Commissioner must revoke the cash basis of accounting you chose. Subsection 29-50(4) of the GST Act states: The Commissioner must notify in writing of his or her decision under subsection (3). The notice must specify the date of effect of the revocation, which can be the first day of any tax period starting before, on or after the day on which the Commissioner makes the decision. Accordingly, the Commissioner now notifies you that cash basis of accounting has been revoked. You must account on non-cash basis from the date specified in the private ruling issued to you. Please note that your files are now updated with this change and that you must revise and complete all your activity statements on this basis.

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.