Private ruling: GST and ceasing to account on a cash basis
Published: October 2011

Ruling: Q1: Can you change your method of accounting for goods and services tax (GST) from a cash to a non-cash basis effective 1 July 2011? | A1: Yes, you change your method of accounting to a non-cash basis effective 1 July 2011.

Relevant facts and circumstances: Company X, Company Y, Company Z and ABC Partnership (you) are related entities. The companies have a common director and that same individual is a partner in the partnership. Your aggregate turnover as at 1 July 2011 is over $2M. As at 1 July 2011, you no longer satisfy the small business entity requirements. You are currently registered for GST using a cash basis of accounting.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Subsection 29-40(1). | A New Tax System (Goods and Services Tax) Act 1999 Paragraph 29-50(1)(a). | A New Tax System (Goods and Services Tax) Act 1999 Paragraph 29-50(2)(a). | Income Tax Assessment Act 1997 Section 328-110.

Reasons for decision: Summary: 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: (a) 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 (ab) you do not carry on a *business and your *GST turnover does not exceed the *cash accounting threshold; or (b) for income tax purposes, you account for income using the receipts method; or (c) 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: (a) you carry on a *business in the current year; and (b) one or both of the following applies: (i) 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; (ii) your aggregated turnover for the current year is likely to be 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. An entity is connected with you if: · you control or are controlled by that entity, or · both you and that entity are controlled by a third entity. An affiliate is an individual or company that, in relation to their affairs, acts or could reasonably be expected to act in accordance with your directions or wishes, or in concert with you. According to the information you provided, your aggregated turnover for the current financial year exceeds $2 million. As such you are not 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 a 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. From this date, you can account for GST on a non-cash basis. 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.