​One of the earliest decisions small business owners face is whether to use cash accounting or accrual accounting. This choice affects how you record income, expenses, and how your tax liabilities are calculated.
But it’s also an area where confusion often arises — especially around the difference between GST reporting and income tax accounting methods. 

Let’s break it down.

Cash Accounting
Under the cash basis, income is recorded when you actually receive money, and expenses are recorded when you pay them.
✅ Pros: Simple, easy to follow, aligns with your bank balance.
❌ Cons: Doesn’t reflect money owed to you (debtors) or unpaid bills (creditors).
Best suited for: Sole traders or micro-businesses with straightforward transactions.

Accrual Accounting
Under the accrual basis, income is recorded when it is earned (e.g., when you issue an invoice), and expenses when they are incurred (e.g., when you receive a bill), regardless of payment timing.
✅ Pros: More accurate picture of business performance, better for planning and growth, aligns revenues with expenses.
❌ Cons: More complex, requires more bookkeeping discipline, can show a “paper profit” when cash flow is tight.
Best suited for: Growing businesses, businesses with stock or trade credit, or anyone needing external finance.

GST Accounting Basis vs Income Tax Method
Here’s where many people get tripped up:
your GST basis and your income-tax accounting method are not the same thing, nor do they have to match.

GST Basis

• Governed by the GST Act.
• Eligible businesses (usually turnover under $10m) can elect to report GST on either a cash or non-cash (accruals) basis.
• Choice affects when you attribute GST on sales and purchases, not how you prepare financial statements or lodge income tax.

Income Tax Accounting Method

• Governed by s 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997).
• Timing of income recognition depends on whether you use the receipts (cash) method or the earnings (accruals) method.
• The ATO ruling TR 98/1 explains:
  • Cash method → income is derived when received.
  • Accrual (earnings) method → income is derived when a recoverable debt arises.
  • For trading/manufacturing businesses, accrual is usually required (TR 98/1, para 19).

Financial Reporting Standards

• Under AASB 101 Presentation of Financial Statements, companies must prepare financial statements on an accrual basis (paras 27–28).
• This is separate again from both GST and income tax timing.

Why the Distinction Matters👉 A business can lodge GST on a cash basis while still preparing accounts and paying income tax on an accruals basis.
​
👉 The law does not require the two to align. They are separate elections with different purposes:

• GST → determines when GST is reported and paid.
• Income Tax → determines when income is assessable under tax law.
• Financial Reporting → must always be on accrual under accounting standards.

Final Thoughts

If you’ve ever been told that “if you’re cash for GST, you must also be cash for company tax” — that is incorrect.

• GST basis is about cash flow timing of GST liabilities.
• Income tax accounting method follows the ITAA 1997 and TR 98/1 derivation rules.
• Financial statements must always be accrual-based under AASB 101.

So while the terms sound similar, they are legally and practically distinct. Understanding the difference will not only help you stay compliant but also give you a clearer picture of your business’s true financial position.

If you're a small or medium-sized business owner in Australia, there's an important tax change you need to be aware of. From 1 July 2025, interest charges applied by the ATO — including the General Interest Charge (GIC) and Shortfall Interest Charge (SIC) — will no longer be tax deductible.
This is a major shift in how ATO debt is treated for tax purposes, and it could impact your bottom line if you carry unpaid tax debts or are facing a tax shortfall.

What’s Changing?
Until now, ATO interest charges have been tax deductible, meaning they helped reduce your taxable income in your annual return. This was especially helpful during periods of cash flow stress, when businesses were more likely to carry outstanding tax debts.
From 1 July 2025:

• Interest charges imposed by the ATO will no longer be deductible in your income tax return.
• This applies to all income years starting on or after 1 July 2025, including those with substituted accounting periods (SAPs).

What This Means for You
If you incur GIC or SIC after 1 July 2025, those charges will become an additional cost to your business, with no tax relief available. This change increases the importance of keeping up with your ATO obligations and avoiding interest wherever possible.
However:

• Any interest charges incurred before 1 July 2025 will still be deductible in the 2024–25 (and earlier) tax years.
• If the ATO later remits interest you've already claimed, that amount must be included as income in the year it’s remitted.

Why It Matters
ATO interest charges can add up quickly:

• GIC applies to unpaid tax debts, and it’s charged daily until the debt is cleared.
• SIC is charged when the ATO amends your assessment after finding a tax shortfall.

Without the ability to claim these charges as deductions, they will now have a bigger impact on your cash flow and tax position.

What You Should Do Now
​To stay ahead of the changes and avoid unnecessary tax costs:

• Review any ATO interest charges and, if possible, pay off outstanding debts before 1 July 2025.
• For the 2024–25 tax return, continue tracking and claiming deductible GIC and SIC as normal.
• If your business uses a substituted accounting period, check when your financial year begins — the new rules apply to any SAP starting after 1 July 2025.
• Speak to your accountant or BAS agent now to plan ahead and avoid surprises at tax time.

Need Help?
If you’re unsure how this change affects your business or want support reviewing your ATO obligations, feel free to get in touch. Staying proactive now could save you money later.

Debtor Management is critical to ensuring your business has sufficient working capital to reinvest and grow. We have compiled a quick list of 8 steps to ensuring your cashflow management system is as robust as possible to keep your business healthy and growing.
1. Credit Policy and terms of trade
Credit policies need to be routinely reviewed to ensure they are appropriate for the organisations risk profile. The credit policy should be clearly articulated in writing to all debtors and understood by all staff. Terms of trade should be documented and cover areas such as prepayments, down payments, terms and any discounts for early settlement.
2. Invoicing and estimates
All quotes, estimates, invoices, contracts, agreements, purchase orders, and related documentation should refer to your terms of trade and credit policy, and information on the nature of work/products supplied, quantities, timings and the structure and method of payment should be clearly articulated in order to minimise any misunderstandings. Ensuring that acceptance of terms in writing is recommended. And of course, invoice as early and as often as possible.
3. Accounts receivable processes
The process for collections should be clearly mapped out and understood by staff, with the timings of various communications (letters/emails/phone calls) articulated. In the event of debtor disputes, payment of the non-disputed amount should always be sought to maintain cashflows.
4. Conduct Credit Checks to identify and mitigate risks
Credit checks for new and existing customers should be carried out routinely to identify issues which can influence credit limits. Credit data products such as ledger monitoring and alerts are increasingly available to identify deterioration in credit-worthiness and mitigate credit risk.
5. Review system and ledger monitoring
Scheduled reviews of credit limits is critical to ensure settings are appropriate for individual debtors. Routinely monitoring the days outstanding (DSO) is critical to identifying adverse trends in the debtors ledger and ensuring prompt action.
6. Systems and data management
Good debtor management relies on well-maintained information. There are numerous software solutions available to assist owners in credit management, and increasingly more of them are cloud-based. Data integrity needs to be maintained to ensure credit limits are appropriate, and the organisation has good knowledge of the legal entities to which credit is extended.
7. Credit Management services
Close monitoring of the debtors ledger is the best way to minimising issues however there will be situations which are uncontrollable. Organisations should consider if the use of credit insurance products and debt recovery services is appropriate to manage the risk and effects of bad debts. Ensuring that terms of trade have been reviewed by solicitors and are legally compliant will ensure there will be no impediments to the recovery process. Some financing solutions such as factoring (also known as debtor finance) can provide a cost-effective and comprehensive credit management function in addition to a flexible line of credit which ensures that the debtor ledger is maintained and sufficient working capital exists to fund the business.
8. Bad debt provisioning
Credit management is about safeguarding profitability and provisions for bad debts should ideally be made in any annual or ongoing budgeting process to minimise the risk of impacting on profitability.

​Efficient and effective debtor management is critical to maintaining strong, healthy cash flows but gains from process improvement can be finite in a competitive business environment, and cash flow is impacted by many external factors which make it inherently unpredictable. In such circumstances working capital finance solutions, such as invoice finance and debtor finance may help bridge the cash flow gap between invoicing and payment to ensure wages, tax and creditors are kept up to date.