Matley Financial Services Laud IRD's AIM Tax Legislation

As part of legislation enacted on 21 February 2017, the Taxation (Business Tax, Exchange of Information, and Remedial Matters) Act 2017, a new method for calculating provisional tax was introduced – the accounting income method (AIM), and in the opinion of Matley Financial Services this is good legislation.

AIM stands for Accounting Income Method and effectively calculates your tax liability as you go, almost like PAYE for trading entities.  Income Tax is then paid every two months at the same time as your GST (although it is separate to your GST return).

AIM doesn’t replace traditional Provisional Tax calculations, but one of the

distinct advantages is that AIM can be adopted in your first year of trading, unlike other provisional tax methods that require you to have traded for up to two years before you can start paying as you go.  However, you can still select the Standard Method (which is last year plus 5% uplift paid in three installments) or the Ratio Method (Ratio Method needs two years of provisional tax data and isn’t commonly adopted).

Annual Adjustments are still calculated and you can adjust the annual Tax figure with the tax paid under the AIM method like any other provisional tax calculation.  If you have short-paid tax, then you have until the 7th April of the following year to pay with no penalties or Use of Money Interest (UOMI), and if you have overpaid then you get the tax refunded.  Any losses carried forward are offset against the period by period’s profits so they are calculated as you go and are not lost.

If you choose to not include Shareholder Salaries and Depreciation (or even Stock movements) on a two-monthly basis and do this as an annual adjustment via your Accountant, that is still an acceptable option.  Any overpayment of tax by the company can then be transferred to the Shareholders and will be treated as tax paid on a quasi-trust arrangement for the Shareholders.  The Shareholders won’t be charged penalties and UOMI by adopting this process.

If you work with Matley as your Tax Agents, they can file the AIM statement for you and it contains no more information than what is already provided for in the IR10 (a mandatory brief breakdown or income and expenses) that they file with the IRD on an annual basis. AIM is part of pre-loading data for the Annual Accounts, this will speed up the processing time and mean that there are no surprises as part of the annual tax process (and no nasty 7th April tax bill), so to find out more about trust compliance, exit strategies and management accounting please go to http://www.matley.co.nz .