Tax adjustments for accounts receivable and accounts payable under AIM

Scope

1. Under the Accounting Income Method (AIM), taxpayers can calculate their provisional tax payments by using accounting software if that software is in accordance with determinations made under section 91AAX of the Tax Administration Act 1994.


2. An AIM-capable accounting system calculates provisional tax using year-to-date accounting income and expenditure adjusted for tax purposes (if required). The purpose of this determination is to detail the tax adjustment for accounts receivable and payable to calculate year-to-date net positive accounting income and expenditure, after tax adjustments, for an AIM instalment period.


3. Where a person is registered for GST on a payments basis or is not registered for GST, they are not required to accrue accounts receivable and accounts payable in calculating accounting income and expenditure. They may however elect to accrue accounts receivable and accounts payable in calculating accounting income and expenditure, and, where an election is made, that election cannot be revoked for the income year.


4. A person that is registered for GST on an invoice basis must account on an accrual basis.


5. A person that is registered for GST on a hybrid basis may account on a hybrid basis or on an accrual basis.

Application

This determination applies for the 2018-19 and later income years.

Tax adjustments: choices and adjustments

1. This clause requires tax adjustments to the extent to which a person’s accounting income and expenditure does not already accord with the adjustments described in this clause.


2. Subclauses (3), (4), and (5) apply to adjust accounting income and expenditure, if such income and expenditure is assessable or deductible.


3. A person who is not registered for GST or is a registered person who must account for GST on a payments basis must account for accounting income and expenditure on a money received and paid basis for an income year, unless they make an election to account on an accounts receivable and accounts payable basis (accrual accounting basis) for an income year. For instalment periods in the income year, tax adjustments to accounting income and expenditure must be made to account for their elected basis.


4. A registered person who must account for GST on an invoice basis for an instalment period must use the accrual accounting basis using tax invoices, debit notes, and credit notes, received and issued as the basis for accounts receivable and payable (registered accrual accounting basis). For the instalment period, tax adjustments to accounting income and expenditure must be made to account for the registered accrual accounting basis.


5. A registered person who must account for GST on a hybrid basis must choose, for an income year, to account for accounting income and expenditure on either an accrual accounting basis or on a money paid and accounts receivable basis. For an instalment period in the income year, tax adjustments to accounting income and expenditure must be made to account for their basis.

Example:

Trish uses an AIM-capable accounting system to calculate her provisional tax liability and is registered for GST on the invoice basis.

For her AIM instalment period August/September Trish had invoiced sales (excluding GST) of $12,000.

Of her total invoiced sales during the AIM-instalment period she received payments of $7,520.

Trish has accounts payable during the AIM-instalment period (excluding GST) of $8,000. Of that, Trish paid $6,750 during the AIM-instalment period.

An AIM-capable accounting system must ensure that accounting income for sales is $12,000 making an adjustment of $5,461 to income on top of her cash accounting basis position ($6,539).

Similarly her accounting expenditure is $8,000 not $6,750.

Tax adjustments: manual and automatic

A tax adjustment under this determination must be made by—

1. the user of the accounting software, manually:
2. the accounting software, automatically:
3. any other means, as appropriate.

Tax adjustments: errors and oversights in previous instalment period

An error or oversight affecting accounting income or expenditure (including income or expenditure adjusted by a determination) for an instalment period in an income year must be corrected by making a tax adjustment in the next instalment period after the one in which the error or oversight is identified.

Interpretation

1. In this determination, unless the context otherwise requires,—
   
   instalment period, for a person, means the 2-monthly or monthly period given by schedule 3, part AB of the Income Tax Act 2007 for the applicable instalment date:


2. Any word used, but not defined, in this determination has the same meaning as in the Income Tax Act 2007 or the Tax Administration Act 1994 (as appropriate), unless the context otherwise requires.


3. Examples used in this determination are included in this determination only as interpretational aids. If there is conflict between an interpretational aid and a provision of this determination, the provision prevails.

This determination is made by me, acting under delegated authority from the Commissioner of Inland Revenue under section 7 of the Tax Administration Act 1994.

This determination is signed on the 10th day of October 2017.

Keith Taylor

Manager, PAS