OPINION: In April 2018, the IRD rolled out the Accounting Income Method, or Aim, a new method for paying provisional tax.
Aim spreads provisional tax payments over six or 12 payments rather than the current three. Also, rather than basing provisional tax on the previous year's income plus an uplift of 5% or 10%, the payments are based on income and expenses within the period by utilising information in the business' approved accounting software. IRD has actively promoted Aim on the basis that tax payments will match cash flow, which will make paying provisional tax more manageable.
While this seems like a great concept, in practice it is much more complex and farmers especially can be disadvantaged by the scheme. While the IRD might argue provisional tax is not a final tax and it is all squared up at the end, the fact is businesses do not want to pay tax earlier than they have to when that cash could be put to better use in their business.
The eligibility to use the Aim scheme is limited, and only companies and individuals are able to participate. Some may also be excluded due to other factors related to their income.
The Aim system uses the profit and loss information in the accounting software to establish a monthly or two monthly taxable profit. However, when a typical end of year tax return is calculated, many adjustments are applied to determine the taxable income figure. This includes things like shareholder salary, the use of tax losses and stock valuation There is some capability within Aim to make some adjustments.