GOODS AND SERVICE TAX- THE VARIOUS BASIS'S AND HOW TO CHANGE A BASIS
sometimes have problems paying tax on time when customers are late in paying for
particular area mentioned is having to pay GST long before payment is received
for a job.
problem may be reduced by changing the way in which you account for GST.
registered for GST can choose to account for the GST they collect in one of the
following three ways:
may account for GST on the following basis:
|Payments (or Cash) basis|
invoice basis is the most common way of accounting for GST. When you register
for GST you are automatically put on to the invoice basis unless you ask to go
on one of the other options.
using the invoice basis you must generally account for GST in the earlier of the
taxable period in which you:
|issue or receive an invoice, or
|receive or make a payment.
advantage of using the invoice basis is that you may claim GST incurred on
purchases before making payment (except for secondhand
goods). It may also suit your existing accounting system.
disadvantage of using the invoice basis is that you may have to account for GST
on sales before you receive payment from your customer.
(OR CASH) BASIS
The payments basis is often used by small businesses and is considered the simplest for someone using bank statements or a cash book to record business transactions.
you use the payments basis you generally account for GST in the taxable period
in which you make or receive payment. This is why it is sometimes called the
You should consider the
payments basis option if your business often has customers who pay late.
the payments basis you do not account for debtors and creditors at the end of
each return period.
you may only claim for GST incurred on purchases or expenses after
making payment to the supplier.
payments basis may be used by any registered person if the total value of
|was $1.3 million or less for the
last 12 months, or |
|is not likely to exceed $1.3 million
in any 12 month period beginning on the first day of any month. |
hybrid basis is a mix between the invoice basis and the payments basis.
you adopt the hybrid basis you account for GST on your income using the invoice
basis and you claim GST on your expenses using the payments basis.
YOUR GST BASIS
you think a change to your accounting basis for GST might help your business,
you need to apply to Inland Revenue in writing. If your application is approved,
they will send you a letter advising when you can start using the new accounting
may need to make a one-off adjustment for debtors and creditors.
change may affect your other tax affairs, such as how your income tax returns
are prepared, so it may be advisable to discuss the change with your Accountant
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