The Accounting Income Method – An Alternative Way to Paying Provisional Tax.

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The accounting income method (AIM) is a way to calculate provisional tax if you use accounting software such as MYOB, Reckon or Xero and have turnover of less than $5 million. Under this method, your provisional tax payments will be based on your accounting profit for a period of time (usually in-line with your GST filing due date). The accounting software easily and accurately prepares a statement of activity which details your payments and as a result puts payments more in line with the profit you make.

What sets AIM apart from other methods is that you only pay when you make a profit.

Businesses that will benefit the most from using AIM

  • New businesses

  • Businesses that are growing

  • Those that have seasonal or irregular income

  • Businesses that have difficulty forecasting their income accurately

There is no use-of-money interest charged by IRD for businesses using AIM, provided payments are made in full and on time. If your business makes a loss you can receive your refund straightaway instead of having to wait until the end of the year.

Cons to Using AIM

  • Tax pooling is not an option, so if you file a statement of activity but do not make the payment on time you will be liable for interest and penalties.

  • This method is highly reliant on the accuracy of the data you enter into your accounting software. You may incur penalties if you don’t take reasonable care when calculating payments.

  • Partnerships and trusts cannot use AIM

  • Once you chose this method you cannot opt out until the start of a new income year

Heather Spreckley