Does my accounting software need to match my GST basis?

Yes. Your accounting software (Xero, MYOB, etc.) should be set to the same basis as your IRD registration. Most software can handle either method — just check your settings.

What about deposits — when do they count?

On invoice basis: deposits received before issuing an invoice are included in your GST return for that period. On payments basis: deposits count when received, regardless of invoicing.

What happens if I exceed the $2M threshold mid-year?

If your turnover exceeds $2 million in any 12-month period, you must switch to invoice basis. Contact the IRD or your accountant promptly to make the change.

Verified for 2026 Tax Year

Invoice Basis vs. Payments Basis

Your accounting basis determines *when* you pay tax. Get it wrong, and you could be paying the IRD before your customers pay you.

The 10-Second Rule

If you use **Payments Basis**, you only pay GST when money is actually in your bank. If you use **Invoice Basis**, you owe GST the moment you send an invoice—even if the customer hasn't paid yet.

The Cash Flow Timeline

MAR 15

Invoice Issued ($1,500 GST)

INVOICE BASIS: TAX DUE PAYMENTS: NOTHING DUE

APR 20

Customer Pays Invoice

PAYMENTS BASIS: TAX DUE

Quick Decision Guide

🏪

Small Businesses

Use **Payments Basis**. It protects your cash flow by ensuring you only pay the IRD after you've been paid.

🏢

Corporates ($2M+)

**Invoice Basis** is mandatory. Larger entities usually have the cash reserves to handle the timing gap.

📈

Startups with Debt

Consider **Invoice Basis** to claim GST back on large setup costs immediately, even if paying later.

Eligibility Rules

Annual Turnover	Available Options
Under $2 million	Payments, Invoice, or Hybrid
$2 million – $24 million	Invoice basis only (Monthly or 2-Monthly)
Over $24 million	Invoice basis only (Monthly filing required)

Critical Audit Risk

If you don't actively choose a basis when registering, the IRD will automatically assign you to **Invoice Basis**. If you then file as if you were on Payments basis, you will face penalties for under-reported tax on unpaid invoices.

TIP: Check your "GST Account Details" in myIR to confirm your current basis.

Frequently Asked Questions

Does my accounting software need to match?

Yes. Xero or MYOB must be set to the same basis as your IRD registration. If they differ, your GST returns will be fundamentally incorrect.

What about deposits?

On **Payments basis**, deposits count the moment they hit your bank. On **Invoice basis**, they count the moment you issue the receipt or invoice, whichever is earlier.

What is "Hybrid Basis"?

A rarely used method where you pay GST on invoices issued, but only claim GST on expenses when paid. It is generally the worst of both worlds for cash flow.

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