After registering for GST and selecting your filing frequency, your next important decision is: How will you calculate GST?
Inland Revenue (IRD) offers three different accounting methods — and it’s crucial to pick the one that best suits your business needs.
1. Cash Basis – For Small Businesses (GST based on actual payments)
✅ Best suited for:
Businesses with turnover ≤ NZD 2 million in the last 12 months.
📌 How it works:
- You pay GST only when you receive payment from your customers. 💰 (No cash received = No GST to pay!)
- You can claim GST only after you’ve actually paid your supplier. 💸 (No payment made = No GST credit!)
👉 Ideal for:
Start-ups and small businesses with irregular cash flow — helps manage GST in line with real money movement.
2. Invoice Basis – For Larger or More Established Businesses (GST based on invoices)
✅ Best suited for:
Available to all businesses, but mandatory if your annual turnover is over NZD 2 million.
📌 How it works:
- Once you issue an invoice, you must pay GST, regardless of whether you’ve been paid. 📄 (You may end up paying tax on income you haven’t received yet!)
- You can claim GST as soon as you receive an invoice, even if you haven’t paid the bill yet. 📥 (Early GST credit, before cash actually goes out!)
👉 Ideal for:
Medium to large businesses with reliable customers, or B2B operations with stable revenue and structured accounting.
3. Hybrid Basis – A Special Case (Mix of cash and invoice rules)
✅ Best suited for:
Any business may apply, but usually not recommended unless under specific advice.
📌 How it works:
- GST on sales is calculated using the invoice basis — you owe GST when you issue an invoice, whether or not you’ve been paid.
- GST on purchases is claimed using the cash basis — you can only claim once you’ve actually paid.
👉 Ideal for:
Some specialised industries or businesses under unique accounting requirements.
⚠️ But be cautious — this method can create cash flow mismatches and is not advised for most SMEs.
📌 Summary: Which GST Method Is Right for You?
✅ Turnover ≤ NZD 2 million? →
Choose Cash Basis – You pay GST only when the money comes in, better for small business cash flow.
✅ Turnover > NZD 2 million? →
You must use Invoice Basis – No flexibility here.
✅ Thinking about Hybrid Basis? →
Think twice! It can lead to cash flow stress. Only use if advised by your accountant.
💡 Accountant’s Tip:
For most small and medium businesses, the Cash Basis is a smart choice. It aligns your GST obligations with your actual bank account activity — reducing surprises and easing your cash flow management.Still unsure which method is best for your business?
Get in touch with us — we’re here to help you choose wisely!
EN 
CN