Topic: Cash basis election notification – do you need one?

Last reviewed: 09/12/2025

Focus: Accounting Practice Analysis

Cash Basis Election Notification: Do You Need One?

Understanding whether a cash basis election notification is necessary is crucial for Australian businesses that wish to adopt the cash basis of accounting for GST reporting. This decision can affect how your business manages cash flow, records transactions, and interacts with the Australian Taxation Office (ATO).

Featured Answer: A cash basis election notification is required if your business opts to account for GST on a cash basis. This method allows you to report GST in the period you receive or make payments, rather than when invoices are issued. To elect this method, you must notify the ATO, typically through your BAS lodgement or directly via the ATO portal.

What is a Cash Basis Election?

The cash basis of accounting allows businesses to report GST based on actual cash flow, meaning GST is recorded when payments are received or made. This contrasts with the accrual basis, where GST is reported when invoices are issued or received.

Why Choose the Cash Basis?

Electing the cash basis can be beneficial if your business has a significant delay between issuing invoices and receiving payment. It aligns your GST liability with your actual cash flow, potentially improving liquidity management. According to the ATO, businesses with annual turnovers of $10 million or less are eligible to use the cash basis for GST.

How Do You Notify the ATO?

Notification Process

To notify the ATO of your election to use the cash basis, you can do so when you lodge your Business Activity Statement (BAS). You may also update your accounting method through the ATO's online services for business. The election remains valid until you decide to change it or until you no longer meet the eligibility criteria set by the ATO.

Necessary Documentation

Ensure that your financial records accurately reflect the cash basis method. This includes maintaining clear records of payments received and made. It's advisable to consult with an accountant to ensure compliance with ATO requirements, particularly if transitioning from the accrual basis.

What Are the Benefits and Drawbacks?

Benefits

Improved Cash Flow Management: Aligns GST liability with cash flow.
Simplicity: Easier to track and manage, especially for small businesses.
Flexibility: Suitable for businesses with fluctuating cash receipts.

Drawbacks

Eligibility Restrictions: Only available to businesses with turnovers up to $10 million.
Potential Complexity: If transitioning from the accrual basis, it requires adjustments in financial reporting.

Practical Example

Consider a small retail business with an annual turnover of $5 million, which experiences a three-month delay in payment receipts from clients. By electing the cash basis, this business reports GST only when payments are received, thus avoiding cash flow issues related to GST liabilities on unpaid invoices.

Frequently Asked Questions

Q: Can any business use the cash basis for GST?

A: No, only businesses with annual turnovers of $10 million or less are eligible, as per ATO guidelines.

Q: How do I change from accrual to cash basis?

A: You must notify the ATO through your BAS or directly via the ATO portal. It’s recommended to consult with an accountant for seamless transition.

Q: What happens if my turnover exceeds $10 million?

A: You must switch to the accrual basis and notify the ATO accordingly. This change should be reflected in your next BAS.

Q: Is the cash basis method suitable for all businesses?

A: While beneficial for managing cash flow, it may not suit businesses with stable, immediate payment structures.

Q: How does the cash basis affect financial reporting?

A: Under the cash basis, financial reporting focuses on actual cash transactions, offering a clear view of cash flow.

Conclusion

Choosing to notify the ATO of a cash basis election can significantly impact your business's cash flow management and GST reporting. It is essential for eligible businesses to carefully consider their financial structure and consult with accounting professionals to ensure compliance and optimize benefits.

Next Steps with Fedix

Learn more about how Fedix and MyLedger can assist in managing GST reporting and cash basis accounting. Our AI-powered platform streamlines financial processes, ensuring compliance and efficiency. Visit [Fedix's website](https://home.fedix.ai) for more information and to explore how our solutions can benefit your practice.

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Disclaimer: This article provides general information only and does not constitute financial advice. It is advisable to consult with a qualified accountant or tax professional for specific guidance tailored to your business needs.