We signalled some months ago that a new method of calculating provisional tax is becoming available. This is known as the Accounting Income Method, or AIM. This method is particularly useful if:
- your business is growing you are new to business
- you have irregular or seasonal income
- it is hard to forecast your income accurately
- your accounts are prepared using accounting software (if we prepare your GST returns, you qualify)
The benefit that AIM provides is that tax is calculated in each period on the income earned. If your business makes a loss for the period you can receive a refund of tax straightaway – provided tax had been paid in a previous period within that tax year. And if payment is made when due, there is no exposure to use of money interest.
There is no requirement to use AIM – you can use another provisional tax option if AIM does not suit your business.
There are a number of qualifiers to be eligible to use the AIM method. These include, but are not limited to, the following:
- Revenue under $10 million
- Need to use an approved accounting system, such as Xero, MYOB AccountRight Live, MYOB Essentials Accounting, or APS. Sorry, Quickbooks is not a recognised provider.
- Must be a company or an individual. Cannot be a partnership or a trust.
There are also some exclusions, including not using tax pooling for making delayed tax payments, and not investing in a foreign investment fund or controlled foreign company. And there are other factors that can create complications, such as whether there are assessed losses brought forward.
How does it work?
It is necessary to file an Activity Statement whenever provisional tax is due. The Activity Statement reports on the profit for the period, including depreciation, inventory, shareholder salaries and debtors/creditors. The tax amount will cover the company and individual shareholders tax liability.
The Activity Statement is due monthly if registered for GST on a monthly basis, two-monthly if registered for GST on a two or six-month basis, and if the taxpayer is not registered for GST, on a two- monthly basis.
To opt in to using AIM, simply send an Activity Statement to IRD through the software by the first due date. For a standard balance date, the first Activity Statement would be due by 28 August for most provisional tax payers, covering a 4 month period, however you may choose to file an initial 2 month return by 28 June. IRD will then know that you have chosen to use AIM for the 2019 tax year.
We will be contacting a number of clients directly that we have pre-qualified as being suitable for AIM. If you want to use the AIM method or know more about it, please do not hesitate to contact us.