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Is AIM right for you? Understanding the new provisional tax option Is AIM right for you? Understanding the new provisional tax option

AIM (Accounting Income Method) is a new provisional tax payment method that small businesses can use from 1 April 2018.

 

Taxpayers who currently use AIM capable software (or have the software in place by 1 April 2018) and whose turnover is less than $5m can choose to use the new AIM method.  At the time of writing, packages that are currently AIM capable are MYOB AccountsRight Live, MYOB Essentials Accounting, Reckon APS Software and Xero Tax Practice Manager.

Some taxpayers such as trusts, partnerships or those who have investments in a controlled foreign company (CFC) or a foreign investment fund (FIF) are however excluded from this method.

On the positive side…

Under the AIM method, you will only pay provisional tax if you are making a profit, which will avoid cash flow headaches that typically arise under the current three instalment dates, and IRD will not charge interest so long as you pay on time.

The method has been designed to make it easier to manage your provisional tax as the functionality in the software calculates your payments for you.  And if you happen to go into a loss position one month, the software calculates your automatic refund.

On the negative side…

The method requires some work up front in terms of working out your likely annual tax adjustments in advance, and unless you have a good understanding of how tax rules differ from accounting rules, this is a step that you should definitely be getting your accountant involved with.

One downside to the AIM method is that you will be making provisional tax payments every two months, or monthly if registered for GST on a monthly basis.  For some taxpayers it is often more beneficial to have the cash in the business rather than it sitting with the IRD for the year, in which case they would just continue with their current provisional tax method.

On the other hand, those taxpayers whose cash flow means they have difficulty finding three lump sums of cash throughout the year to pay tax are likely to find the AIM method favourable.

Another key downside is that tax pooling cannot be used for the provisional tax payments under this method.  Given the benefits taxpayers receive from using tax pooling, together with the benefit of keeping cash in the business, it would appear unlikely there will be a strong appetite for the AIM method.

However, if you have weighed up all the above and you meet the criteria and want to use this method, you simply send the IRD your statement of activity via the software before the first due date (28 May if you pay GST monthly, otherwise 28 June); there is no registration needed.

If you would like to discuss whether AIM is right for you, contact your usual Hayes Knight advisor.

Shelley-ann Brinkley
Associate - Tax Consulting
T +64 9 414 5444
E shelley-ann.brinkley@hayesknight.co.nz

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