The new Accounting Income Method (AIM) introduced by the IRD is a system which allows you to pay your provisional taxes with each GST return based on your Accounting Income for that period. This alternative payment method will not suit every business and has some restrictions. Read below for an outline of the details.
Will the AIM system suit you and your business?
- Firstly it’s important to note that it is an option rather than a replacement. You can still use the standard methods of provisional tax paid in most cases is paid every four months or the ratio basis which works well for in some cases.
- It can’t be used for partnerships or trusts or any business with a turnover over 5 million per annum.
- It is only available to be used by the remaining businesses who have AIM capable software which at this stage only includes Xero and MYOB. More may follow if the demand increases. The required report can only be produced though these systems and as far as we can see, it is not possible to make any manual adjustments outside of those systems.
- AIM reporting is only available through tax agents accounting systems which means you will be required to do all your GST reporting and filing through your accountant if you want to use AIM.
- If you meet all the criteria above, you then will need to be able to produce at each GST return your up to date depreciation calculations
- Your up to date depreciation calculations
- your trading stock (if applicable)
- a list of debtors and creditors
- any other adjustments in order to get your profit accurate including any shareholder salaries and provisions
- an accurate profit at every two month period
So, when you consider that it can only really be used by sole traders and companies along with the several time consuming and rigid rules around its use, AIM has not been the answer we had hoped for. We think it is ideal for all businesses to have up to date accounts and accurate profits as often as you can, however doing that every two months is not going to be an easy task.
Although the current provisional tax system is often criticised, when it is used in conjunction with up to date tax records and tax pooling, all businesses can achieve a similar result as AIM.
We suspect over time an AIM type system will probably become compulsory as will the need to use accounting software, so the concept should not be discounted. The IRD have spent millions of dollars developing AIM so I am sure it will be here for good. We recommend that if you do qualify for AIM and see some advantages for your situation, please give us a call to ensure that you have considered each point of the system.
For further info on this system, visit the IRD website.