Businesses using AIM will make provisional tax payments more often. Provisional tax payments will be due monthly for businesses paying GST monthly. Businesses not registered for GST or paying GST every two or six months will pay provisional tax every two months.
We appreciate that businesses on 6 monthly GST have already chosen an option to minimise their tax obligations, therefore paying provisional tax through AIM is an increase. We are interested to hear whether AIM would be of use to you.
Making provisional tax payments more often will better match when income is earned to when tax is paid, making it easier for businesses with seasonal or fluctuating incomes and increasing their ability to plan financially. If a business is in a loss situation, no provisional tax payment is due. If the business is in a loss position after periods of income, overpaid provisional tax will be refunded during the year. Knowing that there is no exposure to use of money interest or penalties should income and losses be unpredictable is a big benefit.
We expect that as a software user, which could be either a business or their tax advisor, enters and codes income and expenses throughout the year they will be prompted to think about recognition of income and deductibility of expenses. Considering the tax treatment of most adjustments so soon after they are incurred is likely to improve certainty and accuracy for the business owner in their income tax treatment.
Software already calculates accounting profit and, once enhanced, will also calculate a taxable profit (by including tax adjustments). The software will start with some prepopulated adjustments and enable the user to enter others where applicable.
Washington Industries Limited (Washington) manufactures the Theismann rod - an integral part in electric cars. For this example it is assumed that Washington uses the Commissioner’s economic rates of depreciation for accounting and tax purposes. For businesses that have separate accounting and tax depreciation rates an adjustment would be required to swap out accounting depreciation and substitute this with tax depreciation. We understand it is common for SMEs to use tax depreciation rates for accounting purposes.
Alternatively if Washington is not registered for GST or their accounting system can create a profit and loss schedule based on actual results adjusted for tax depreciation and interest they could use those figures to calculate the “taxable income” for the period as follows:
|Wages and Salaries (excl. s/h salaries)||$30|
|Depreciation on assets 1||$25|
|Net profit before tax||$85|
|Tax on net profit (28%)||$24|