GST-registered businesses need to issue tax invoices to their clients, gather GST and send it to the ATO with their business activity statement (BAS). There are certain ways you can make this easier to manage:
- Use business accounting software to generate tax invoices and automatically generate reports of your GST liabilities and credits at BAS time.
- Deposit the GST you collect into a separate bank account.
- Take advantage of the cash accounting option to better match your GST liabilities against your business cash flow.
Paying GST and Your Cash Flow
GST-registered businesses charge and collect GST. If the collected GST is more than the GST credits you are claiming, you send the difference to the ATO with your business activity statement. Most businesses do this every three months. It is crucial to put aside the GST you collect to meet your obligations. There are some ways you can easily manage your GST liability. You can also engage a professional tax accountant near you by searching and hiring a ‘small business accountant near me’.
Most small businesses can have two ways to work out the GST in their activity statement: the calculation method or the instalment method.
Instalment method
If your business income remains consistent throughout the year, you may like to pay a GST instalment amount. This amount is calculated by the ATO depending on what you paid in the previous income year. It means your quarterly payment is always the same (you can change the amount if the situation changes), so you know how much you need to put aside. You then declare your actual GST sales and purchases on an annual GST return.
Calculation method
The calculation method would be the ideal method if you notice fluctuations in your business income. This means you work out the GST on your sales and purchases every quarter when completing your business activity statement.
Choice of An Accounting Method for GST
There are two accounting methods used for GST: a cash basis and a non-cash basis (accruals). The method you use will impact when you report GST. Businesses with a total turnover of less than $10 million, or that use cash accounting for income tax, can use any method. You can also seek advice from a tax return accountant to make the right choice.
Accounting for GST on a Cash Basis
If a business has less than $10 million in total turnover, it can opt for the cash basis method. In this method, you account for GST on the business activity statement that covers the duration during which you make or receive payment for your purchases and sales. With this method, you can have the following benefits:
- The cash flow is better aligned with your activity statement liabilities, so it becomes easy to manage your cash flow.
- This method works best for small businesses that deal primarily in cash.
- Accounting for GST on a Non-Cash Basis
Many large organisations use the non-cash accounting method. However, small businesses can use either the cash method or the non-cash method. Using the non-cash method means you report GST on the BAS for the period in which you either:
- Received any payment or issues with the tax invoice before receiving payment (for sale).
- Received the invoice from your supplier before paying, or made any payment for a purchase.
This method is ideal for businesses that don’t get paid immediately and is:
- A way to monitor your true financial condition – what you owe and what is owed.
- Useful if you deal with various contracts and large amounts of money.
Non-cash accounting can be more complex than cash accounting, and you may need help from your registered tax or BAS agent.
Despite this, you may also be eligible for claiming GST credits for any GST included in the cost you pay for things that you are using in your business. Make sure you have accurate records to support your claim. You can also ask bookkeepers in Melbourne to keep track of purchases, which can be used at the time of claiming GST credits.
Conclusion
Understanding the accounting method for GST is crucial for all types of businesses. You can get in touch with Reliable Melbourne Accountants to stay informed about which accounting method for GST is ideal for your business.