Changing GST Basis in Xero Post Conversion

Changing GST Basis in Xero Post Conversion

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Changing GST Basis in Xero Post Conversion

Changing your GST accounting basis—whether post-conversion or in the future—can significantly impact your GST reporting history. For example, switching from Cash to Accrual will shift GST recognition from the date of payment/receipt to the date of the invoice. As a result, previously lodged reports such as the Business Activity Statement (BAS) and GST Reconciliation will no longer match or balance.

We convert the GST accounting basis as set up in the source file. Please review and update if needed before submitting the data for conversion.  Unlike some systems that allow flexible GST reporting, Xero strictly follows the organisations set up (Cash/Accrual). If a change is needed post-conversion, we recommend pausing work in the Xero organisation until the GST basis is corrected, as changes made without proper adjustment and reconciliation may result in long-term discrepancies that are difficult to resolve or explain especially in future audits.

What Happens When You change the GST Basis in Xero

Changing your GST accounting basis (e.g., from Cash to Accrual or vice versa) will reorganise historical transactions, impacting your GST history and reports:
  1. Cash to Accruals: Transactions previously reported under the Cash basis (based on payments or receipts) will now be recalculated to recognise GST on the invoice or bill date (Accrual basis).
  2. Accruals to Cash: Transactions previously reported under the Accrual basis (based on invoice or bill dates) will now be recalculated to recognise GST at the time of payment or receipt (Cash basis).
  3. This impacts the GST Reconciliation Report, BAS Reports, and the GST account balance.
  4. Past lodged BAS returns may no longer match what Xero now shows.
  5. Unfiled amounts may appear in the GST Reconciliation.

Options for Changing GST Basis Post Conversion

Option 1: Reconversion

If the wrong accounting basis was set up in the source file prior to conversion, you can opt for a reconversion:

  • A reconversion fee may apply in addition to the original package selection.

  • Update the GST settings and re-submit the file with the correct settings.

Option 2: Manually Adjust the GST Basis in Xero

If you decide to change your accounting method in Xero post-conversion you will notice the following:
  1. Your GST reconciliation report will have unfiled amounts.
  2. The GST reconciliation report will no longer balance to the GST report and the balance of the GST account in your chart of accounts.
  3. Your BAS will no longer reflect what you have reported and filed with the ATO or in the source file.

This is all due to the difference between remitting GST for Cash and Accrual methods.

During the conversion process, we may have already made a number of adjusting entries at various dates in Xero pre and post-conversion to compensate for the difference in GST handling between the systems. Some of these entries will need to be readjusted to cater to the change to GST basis method.

Providing this advice is outside of the scope of services we offer so we recommend you confirm with your accountant or bookkeeper what adjustments are required and how to calculate them.

Step 1. Change GST Accounting Basis in Financial Settings

Steps to update the Accounting Basis in Xero,
  1. In the Accounting menu, select Reports.
  2. Under Tax, click Activity Statement.
  3. Click Settings.
  4. Under GST Accounting Method, select the method you are changing to.
  5. Click Save & Continue.

Step 2. Record a GST adjustment

Once you’ve changed the GST accounting method, you may need to make an adjustment so your Activity Statement is correct.
For each quarter from when the transactional history commences in Xero, you will need to compare the source and Xero BAS Reports and make compensating adjustments to ensure that the figures in Xero match the data in the source. If GST adjustments have been captured in the quarter you are reviewing, you could amend the existing adjustments instead of creating a new manual journal:

As per Xero's Help Centre To record the adjustment in Xero:
  1. Create a manual journal.
  2. Code all entries to the GST account using the relevant tax rates.
  3. Date the journal correctly for inclusion in the relevant BAS period.
For example, you may need to:
  1. Reduce sales (G1) by 11,000 (inclusive of 1,000 GST).
  2. Reduce purchases (G11) by 2,200 (inclusive of 200 GST).

Step 3: Compare & Adjust BAS reports

  1. Compare Xero BAS reports with the historical ones from the source data.
  2. Make compensating adjustments as needed for each quarter or reporting period.
Check the BAS report for the following after changing the GST method.

From Cash to Accrual Basis
From Accrual to Cash Basis
Check all entries are included.
Check entries already reported aren't repeated.
Unpaid invoices and bills raised prior to the change may not be reported when paid.
Unpaid invoices and bills raised prior to the change may be reported again when paid.

Step 4. Review the GST Reconciliation Report

AlertOnce you’ve changed the GST accounting method, the GST Reconciliation report may not be correct. This is because the report should include all tax periods, and some tax periods may have had a different GST method. If the report is not correct, you may need to make further adjustments or manually reconcile GST.

Managing GST

There are GST treatment differences between the source accounting software and Xero, which can cause data disruption and potential confusion. More information on GST treatment differences between the source software and Xero can be found in our blog post GST System Differences.

Summary: Best Practices

  • Update GST basis before conversion for the cleanest results.

  • If changes are made post-conversion, seek accounting advice before adjusting.

  • Contact Jet Convert support@jetconvert.com if you're unsure.

  • Refer to our Knowledge Base and GST blog post for additional support.