In the last article we covered provisional taxes! In today’s article we’ll look at provisional taxes’ younger, fancier and more high-tech cousin – the Accounting Income Method (which is handily abbreviated to AIM!)
What is the AIM?
The Accounting Income Method is a recent development by the IRD to make it easier for tax payers to.. Well.. pay their taxes (because that’s what it’s all about isn’t it?). The idea is that, since accounting these days is largely automated and taken care of by fancy accounting software – why not allow tax payers to calculate their taxes via their accounting software and pay their taxes more frequently, instead of at the end of the year (or in three weird instalments).
How does AIM work?
As mentioned above, AIM works based on the accounting software you use. Currently IRD only supports three accounting software for use with AIM here in NZ:
- Xero (obviously)
- MYOB (this one is a granted too)
- Reckon APS (don’t worry if you haven’t heard of them – unless you are an old school or farm accountant, you wouldn’t have come across this one at all)
- Tax Gnome – technically a Xero add-on which does most of the work for you, but you still need Xero for it to work.
Through your preferred accounting software, you can set it up to generate AIM reports together at the same time you generate GST reports for your organisation.
Since AIM calculates the taxes you have to pay based on your profit for the period – you will essentially be paying income taxes as you pay GST. So if you pay GST every month – you will pay AIM every month; if you pay GST every two months, you will pay AIM every two months etc etc. If you’re not registered for GST – you will pay AIM provisional tax every two months.
The key point i’m trying to make here is that with AIM you can basically pay taxes as you go! Or at the very least, as often as you pay your GST!
In other words you can kiss lump sum tax payments at the end of the year and weird provisional tax instalments goodbye!
Awesome! How do I jump on AIM?
Hold on – AIM is only available to organisations that have turnover of less than $5 million a year… given that the main readership of this blog are small business owners – chances are that your organisation qualifies!
To start using AIM – you will need to follow the setup instructions on your chosen software, which you can find the handy guide to here:
Your software should be able to handle it all for you and will also determine if you are eligible for AIM.
If you need more help, you can always talk to an accountant who can help you set it up!
AIM is pretty super and if you’re setup with a direct debit with IRD, you just have to make sure your accounts are up to date every month and tax will take care of itself! If you have an accountant or book-keeper tidying your accounts for you – that’s even less things for you to worry about!
So yeah,
If you want to stay on top of your taxes here in NZ – AIM is one of the best ways to go about it!
Take AIM and fire away at those tax worries!
As always team,
Stay positive!