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