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Introducing The AIM Accounting Method Of Calculating New Zealand Tax.

We earlier commented on changes to New Zealand’s tax system where it would be possible to pay income tax based on actual profits earned to date.

This has come about through greater integration between accounting software packages and Inland Revenue where taxpayers can now file their GST returns directly through their accounting software.

At this stage, we understand that MYOB, Reckon and XERO at the main software packages that are in place to calculate tax based on the AIM method of accounting from the start date of 1 April 2018.

As we mentioned in that blog post, paying provisional tax based on the profits showing an accounting software is not a particularly efficient way of paying tax from a taxpayers viewpoint.

That is because there are often adjustments made to the sets of accounts by accountants that reduce the tax that will be paid. Unless the accountant has actually had the opportunity to put in place those adjustments you are going to be paying tax based on inflated profits.

Furthermore, some accounting packages like XERO, don’t allow depreciation to be factored in by the client.

Even when they can, we see incorrect depreciation calculations based on confusion between the Australian and New Zealand depreciation regimes. Clearly, any depreciation needs to be based on New Zealand rules.

The revenue of many businesses tend to fluctuate throughout the year. There can be better trading periods and slower trading periods.

Having to pay provisional tax in what is a slower trading period because the previous trading period was great can often result in cash flow challenges.

These are some of the key reasons why we recommend clients do not entertain the prospects of using the AIM method of accounting. In fact, we have a number of better options that put less stress on the way you run your business. You can contact us about that.

That being said, if you are interested in the AIM method of accounting as a way of calculating your New Zealand income tax, your annual turnover needs to be a less than NZ$5 million.

The information in this article is indicative of NZ tax rules and changes and not intended to be complete for all intents or purposes and does not constitute advice. It is recommended that you obtain professional advice, suited to your particular circumstances, from us before acting on anything you read.