Tax management

Accounting income method (AIM) for paying provisional tax

Introduced in 2018, AIM is the most recent option small businesses can use to pay their provisional tax. Here’s how it works. 

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An option for small businesses

Businesses have four options to pay provisional taxes:

  • Standard
  • Estimation
  • Ratio
  • AIM, which stands for accounting income method.

AIM enables provisional tax to be calculated through Inland Revenue approved accounting software – MYOB, Xero or Reckon APS.  

With AIM, you make monthly or bi-monthly provisional tax payments, depending on whether your business is GST-registered and how often your GST returns are filed. 

You can learn more about provisional tax methods in our Business tax made simple article.

Some businesses are better suited

AIM attempts to better match provisional tax payments with actual cash flow. So you might prefer to use this method if your business is new, or has irregular or seasonal income. 

Some businesses may simply wish to remove the guesswork out of calculating provisional tax under the other methods. With AIM, accounting software performs the calculations.

Businesses who pay their provisional tax instalments on time, according to the amount calculated under the AIM method, shouldn’t be exposed to ‘use of money’ interest until their terminal tax date.

Criteria for using AIM

Generally, your business can use AIM if it:

  • Has elected to use this method before its first instalment date
  • Has $5 million or less of annual gross income for the prior tax year – if your business makes more than this, it may still qualify to use AIM if you get approval from Inland Revenue (IR)
  • Uses IR-approved accounting software (MYOB, Xero, or Reckon APS).

You can elect to use AIM by sending IR a copy of the Statement of Activity through approved accounting software, before the first provisional tax due date.

Who can’t use AIM

You won’t be able to use this method to pay your provisional tax if your business:

  • Doesn't operate as a company or sole trader
  • Is excluded pursuant to a determination issued by the Commissioner of Inland Revenue (CIR), including businesses operating as a partnership, Māori authority, or trustees or beneficiaries of a trust
  • Has investments in a Foreign Investment Fund (FIF) or Controlled Foreign Company (CFC)
  • Is in a transitional year (a year in which the balance date has been changed)
  • Has previously been subject to shortfall penalties when using AIM
  • Has used AIM to inaccurately assess tax liabilities in the past
  • Has failed more than twice in the current tax year to provide Inland Revenue with a Statement of Activity, which is due on or before each instalment date.

Using AIM to pay provisional tax

If you’d like to use the accounting income method (AIM) to pay your provisional tax, and you think this method will suit your business, you need to use one of the Inland Revenue-approved accounting software providers – MYOB, Xero or APS Reckon.

The software will look at the relevant accounting information from the payment period and use AIM to calculate the amount of tax to pay.

Once the software has calculated this amount, the tax payment needs to be made directly to Inland Revenue. With Xero and Reckon APS, an accountant will need to file the payment. With MYOB, your business can file the payment itself if you’d prefer not to use an accountant. 

At the end of the tax year, your business (along with every other business) will still need to prepare and file an income tax return. This will determine your business’ income tax liability for the year and make sure you pay the right amount of income tax to Inland Revenue. 

Pay on time to avoid penalties

If you miss a payment, interest and penalty rules apply to the underpaid amount. 

Getting started

For more information about AIM, visit the Inland Revenue website or your accounting software provider.

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This information is current as at 21 December 2023 and is subject to change. 

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