2. Accounting Income Method "AIM"
This is the other big change coming this year.
It is a new way of paying provisional tax through the year based on your actual income for the year to date.
Make more profit pay more tax, make less profit pay less tax and if you have overpaid earlier in the year the IRD will pay refunds. In theory at the end of the year the business will have paid the right amount of tax.
There are adjustments required for each pay period to ensure that the income for the period is calculated on a consistent basis to the year end accounts.
These regular adjustments may be too much of a hassle for some businesses, but the IRD are being pragmatic about this. The phrase "near enough is good enough" was used in a recent IRD seminar.
Presumably significant understatement of income during the year can be fairly readily picked up when the year end result is known and explanations required for any significant full year variation.
AIM will not be available to businesses identified as having used AIM to inaccurately assess its tax liabilities.
AIM is also not available to the following entities:
- taxpayers who have foreign investment fund investments*,
(*broadly share investments outside Australia and NZ)
- Maori authorities,
- Portfolio investment entities,
- Superannuation funds.
To be eligible to use AIM a business must:
- have a turnover of less than $5 million per annum,
- file under AIM from the first payment date for the financial year,
(either 28 May or 28 June see below)
- use Xero, Reckon or MYOB (AIM capable) software.
The Xero and Reckon client accounting packages do not have the ability to file AIM returns. This seems to me like a whoopsie by these two software firms whatever the good reasons may be!
Strangely and sadly both Xero and Reckon AIM returns need to be filed through their Tax Management software which generally means it will need to be filed by the tax advisers or accountants for those businesses.
AIM filing and payments are due on GST payment dates:
- monthly for a monthly GST payer,
- two monthly for all others*
(*includes two and six monthly GST registered and non GST registered businesses.)
AIM may be suited to businesses with:
- variable income between years,
- large income fluctuations over a year,
- expecting a much worse year (avoid safe harbour payments based on last year with no risk),
- simpler structures.
If all AIM payments are made on time then there is no interest due on tax payable including any square up at the end of the year which is payable by the usual terminal tax date.