AIM tax method and an alternative

AIM is an alternative method for paying provisional tax than the standard uplift method and may be a great option for some businesses, however there are some significant drawbacks.

Most taxpayers are on standard uplift where provisional tax is paid based on 105% of last years tax (or 110% of the year before that), spread over 3 installments (or 2 installments if you are 6 monthly GST registered). This can be disadvantageous if you experience a downturn in profit and are paying provisional tax on a higher profit year. We have seen this impact builders and tradies in particular for the 2025 year.

AIM is a method where provisional tax is spread over 6 or 12 payments and is based on income and expenses within the period by utilising approved software (such as Xero). How often you pay depends on your GST registration frequency. The advantage is that tax payments will match cash flow which makes paying provisional tax more manageable.

AIM is only available for individuals and companies with annual turnover of under $5 million.

AIM in commercial businesses

The advantage of AIM over standard uplift is that tax payments, so if the business makes a profit for the AIM period (ie. month or 2-month period) you end up paying tax, and if the business makes a loss, you pay no tax. In some cases, you receive a tax refund if the overall position for the entire year is a loss, and you had paid tax in a prior period.

However, there are significant drawbacks. The first being that your accountant must prepare the AIM return due to the complexity which adds costs to those doing their own GST returns. For those where the accountant does the GST return, there will be an extra cost for preparing and filing the AIM return.  

A second drawback is that debtors and creditors must be included in the AIM profit calculation. If you’re already using Xero or MYOB for billing and invoicing that’s easy enough, however if you aren’t this adds extra cost as the accountant must manually add these adjustments in.

IRD’s theory of matching cashflow to tax payments is great in theory, however in practice, by including debtors in the profit calculation you are still paying tax on income that hasn’t yet been received in cash. This still creates a cashflow timing difference.

A third drawback, and one that relates more significantly to farmers, is having to include trading stock in the AIM profit calculation. Because trading stock is considered taxable income, each AIM period must include an adjustment for the value of opening and closing stock. You can use last years closing figure if you don’t want to adjust, or an estimate, however it means that tax paid during the year won’t exactly match the end of year tax calculation.

AIM in farming

Along with all the above considerations, for farmers that own livestock, it is even more complex. This is because livestock are part of the taxable equation and stock values change each year. The IRD doesn’t release livestock tax values until April/May each year so for 10-12 months the AIM profit calculation is based on prior year values. It is also impractical to complete a stock reconciliation every AIM period (ie. every month or 2 months). It is burdensome enough doing this once a year!

If the livestock are valued on herd scheme the tax impact is minimised, however changes in end of year stock numbers is still taxable so impacts the tax calculation. For those using NSC, not only are changes in stock numbers taxable but also changes in stock values, which creates a much larger tax difference.

An alternative?

If you would like to know how your tax liability is accruing as the year progresses, an alternative could be to ask your accountant to provide tax estimates each GST period, or request that they complete mid-year tax reviews if you file your own GST returns. This gives you an idea on how much you should have set aside for tax in a separate bank account. There is obviously more cost involved with this, however if your accountant already prepares your GST return the extra cost should be minimal. We do this for a lot of our clients and they value the advice and believe this is worth the extra cost for peace of mind.

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.