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15 Mar 2018
AIM is an acronym for the accounting income method for paying provisional tax. In simple terms, it is a system where provisional tax for the year, based on the year to date profit, is paid more frequently. For monthly GST registered taxpayers, there are twelve monthly payments. All others, including 2 or 6 monthly GST registered or non registered, have six 2 monthly payments. This new method doesn’t replace the existing options, it is available alongside them.
The instalment amount is based on tax payable on the year to date taxable profit less previous instalments paid. This may result in tax to pay or a refund.
The AIM method means that provisional tax may be paid earlier than otherwise. However, for some taxpayers it may delay payment. This particularly applies to businesses who earn more income in the later part of the tax year, as they would pay smaller instalments initially, with larger ones later on in the year. This contrasts with the traditional payments in equal instalments. It may also suit businesses with cyclical variances in taxable profit from year to year.
The amount to be paid is advised to IRD by completion of a statement of activity. This is similar to the IR10 financial statements summary that is filed with the annual income tax return. This means that IRD will be getting better information on the trading trends of small businesses in NZ and therefore better data for comparison purposes.
At this stage, the statement of activity can only be created by approved software programs. The ones currently approved for taxpayers’ own use are MYOB AccountRight Live and MYOB Essentials Accounting. Tax agents are able to use Xero and Reckon-APS as well.
Even if the appropriate software is available, not all taxpayers are eligible to use AIM. The main exclusions are partnerships, trustees and beneficiaries of trusts, taxpayers with foreign investment funds (FIFs) or where turnover exceeds $5 million. This leaves companies and sole-traders (as long as they don’t hold FIFs).
AIM-capable accounting software also includes adjustments for depreciation & private use expenditure. Debtors and creditors must be included if GST is on invoice basis, otherwise their inclusion is optional. The options for trading stock include use of perpetual inventory, input of a manual stock take figure or constant at last year’s figure. Livestock is not classed as trading stock and must be based on a physical stock take each period. There are special rules relating companies where shareholder salaries are paid.
AIM also takes into account tax losses carried forward from prior years, but only once that year has been assessed. Thus, for the first few instalment dates of the new year, payments will be overcalculated.
An error or oversight affecting the year to date calculation in one period must be corrected in the next period after the error or omission is identified.
The AIM method can be used for the 2018-19 tax year onwards. So for taxpayers with a March balance date first payment will be 28 May 2018 for 1 monthly GST registration or 28 June for all others. Taxpayers can only opt into the AIM method from the beginning of their tax year. i.e. AIM must be used for the full year. The exception is a new business, who can opt in from business commencement.
Taxpayers can swap between methods from year to year.
AIM is not exactly straightforward, nor is it easily established whether a particular taxpayer will be advantage or disadvantaged by adopting AIM. Any taxpayer considering using it will need their accountant to run test scenarios to establish how it will work for them.
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