We’re beginning to see some great changes from Inland Revenue to make tax simpler for small businesses – and it’s only possible because people are filing online.
First we saw the launch of eGST, the ability to lodge your GST return directly from MYOB online accounting software.
We’ve also seen the launch of My GST, part of the myIR portal providing easier ways for businesses to file their GST returns online.
However, one of the big tax areas businesses struggle with is Provisional Tax, and it’s not surprising!
Provisional Tax is meant to help you manage your income tax by paying it in instalments, the plan being you get to ‘spread the load’ and avoid having to pay a big amount at the end of the year.
If your residual income tax (tax to pay) from your last income tax return was more than $2,500, you must pay via the provisional tax method for the following year.
Sounds simple right? Unfortunately not!
Provisional tax relies on you estimating your expected profit for the year. Most of the time it’s either an estimation or it’s worked out from what you did the year before.
Pay too little tax you get penalised, or, you could end up paying too much tax depending on the year you’ve had.
That’s not a great way of doing things.
What if you could calculate your provisional tax based on what you were earning in a given period?
That’s what the new change is all about.
The government announced in the April 2016 budget that they were going to replace provisional tax with a pay-as-you-go tax called the accounting income method (AIM).
Here’s what it’s all about:
As you prepare for the end of financial year, take the opportunity to investigate doing things in a much simpler way.
The reason why this change works is that your accounting software has real-time data on your business, and can calculate your AIM payment in real time.
It makes managing tax simple, but it does involve being online.
We tend to go on about the benefits of moving online – and this is just one more way being online leads to greater efficiencies and peace of mind.
We’re living in a time when your accounting software can automatically calculate your tax obligations on the fly rather than you having to pull out the calculator and a tax table.
The AIM doesn’t come into effect until April 2018, but we’d advise getting online as soon as possible.
Let accounting software do the heavy lifting for you and get online if you haven’t already done so!