Skip to main content
Fedix AI accounting software Australia - MyLedger logo

Switching GST Methods from Accrual to Cash: Complete Guide

Switching GST methods from accrual to cash can significantly impact your accounting practices in Australia. This transition involves changing how GST is acco...

accounting, switching, gst, methods, from, accrual, cash

09/12/2025 • 9 min read

Switching GST Methods from Accrual to Cash: Complete Guide

Professional Accounting Practice Analysis
Topic: Switching GST methods from accrual to cash

Last reviewed: 09/12/2025

Focus: Accounting Practice Analysis

Switching GST Methods from Accrual to Cash: Complete Guide

Switching GST methods from accrual to cash can significantly impact your accounting practices in Australia. This transition involves changing how GST is accounted for in your businesses' records and reported to the Australian Taxation Office (ATO). Typically, businesses may consider switching to a cash basis to better align GST obligations with cash flow or when they meet specific criteria set by the ATO.

Featured Answer: Switching from an accrual to a cash GST method requires businesses to apply to the ATO, ensuring they meet eligibility criteria. The cash method allows GST to be accounted for when payments are received and made, rather than when invoices are issued or received, which can improve cash flow management.

What Are the Steps to Switch GST Methods?

Switching from the accrual to cash method involves several key steps:

  1. Eligibility Check: Ensure your business qualifies for the cash accounting method. Generally, businesses with a turnover of less than $10 million are eligible, as per ATO guidelines.
  2. Application to the ATO: Submit a request to the ATO to change your accounting method. This can typically be done through the Business Portal or by contacting the ATO directly.
  3. Adjust Accounting Systems: Update your accounting systems and software, such as MyLedger, to reflect the cash accounting method.
  4. Record Adjustments: Adjust your financial records to ensure that past transactions are accurately reported under the new method from the changeover date.
  5. Communicate with Stakeholders: Inform your accounting team and external stakeholders of the change in GST accounting method.

Why Consider Switching to a Cash GST Method?

Switching to a cash GST method can offer several advantages:

  • Improved Cash Flow: Businesses only pay GST once the money is received, aligning GST obligations with cash availability.
  • Simplified Accounting: Smaller businesses often find cash accounting more straightforward, reducing complexity in financial reporting.
  • Eligibility for Simpler BAS: The cash method may simplify your Business Activity Statement (BAS) preparation, potentially reducing compliance costs.

How Does the Cash Method Differ from the Accrual Method?

  • Accrual Method: GST is accounted for when invoices are issued or received, regardless of payment status. This can lead to discrepancies between reported income and actual cash flow.
  • Cash Method: GST is only accounted for when payments are received or made, providing a more accurate reflection of cash flow.

For example, if your business issues an invoice in March but doesn't receive payment until May, under the accrual method, GST is payable in the March BAS. Under the cash method, GST is payable in the May BAS.

What Are the ATO's Requirements for Switching?

According to the ATO, businesses must meet certain criteria to switch to the cash method:

  • Turnover Threshold: Your business turnover must be below $10 million.
  • Approval Needed: Notify the ATO and receive approval before making the switch.
  • Record Keeping: Maintain accurate records to substantiate the transition and future GST claims.

Practical Example of Switching GST Methods

Consider ABC Pty Ltd, a small retail business with a turnover of $5 million. They decide to switch to the cash method to better manage their cash flow. After confirming eligibility, they apply through the ATO Business Portal. Once approved, they update their accounting software, like MyLedger, to reflect the change. This allows them to align GST payments with the actual receipt of funds, enhancing their cash flow management.

Frequently Asked Questions

Q: What are the benefits of switching to the cash method for GST?

Switching to the cash method can improve cash flow management and simplify GST reporting, as GST is only accounted for when cash is exchanged.

Q: How do I apply to change my GST accounting method?

You can apply to change your GST accounting method through the ATO Business Portal or by contacting the ATO directly.

Q: Can any business switch to the cash GST method?

Not all businesses are eligible. Generally, businesses with a turnover under $10 million can switch, subject to ATO approval.

Next Steps

Switching GST methods can offer significant benefits for eligible businesses. For those considering this transition, using advanced accounting software like MyLedger by Fedix can streamline the process with features designed to support Australian tax compliance. Learn more about how MyLedger can help manage your GST reporting, improve cash flow, and simplify your accounting processes.

For more tailored advice, consult a qualified tax professional or refer to the ATO's guidelines.