AIM Vs Standard Vs Ratio
AIM vs standard vs ratio is a timing choice, not a different income tax. Inland Revenue still assesses residual income tax when you file. What changes is how instalments are set: last year’s residual income tax plus 5%, a percentage of GST taxable supplies, or profit from approved software.
Inland Revenue uses the standard option unless you choose otherwise. Ratio has to be elected before the income year starts. AIM is chosen by filing a statement of activity through AIM capable software. Estimation sits as a fourth path when you forecast this year’s residual income tax yourself. This page compares the three that people mix up: AIM, standard, and ratio.
The story people tell themselves
A contractor on r/PersonalFinanceNZ asked if AIM would wait until clients actually paid, the way a GST payments basis return does. Inland Revenue’s AIM pages do not work that way. AIM follows accounting profit in approved software, year to date. Quiet months with invoices still sitting unpaid can still produce a payment. Ratio is different again: it follows GST taxable supplies, not profit. Standard ignores this year’s sales altogether and lifts last year’s residual income tax.
What does each option actually follow?
Standard follows last year’s leftover tax. Ratio follows GST sales. AIM follows software profit. Inland Revenue lists four options on its provisional tax options page. The Provisional Tax category stays on who pays. This post is the three way split.
| Question | Standard | Ratio | AIM |
|---|---|---|---|
| What sets the amount? | Last year’s residual income tax plus 5%, or two years ago plus 10% | Inland Revenue’s ratio × GST taxable supplies | Software profit, year to date |
| When can you join? | Default. No election needed | Before the income year starts | IR289: from standard or ratio, send the first statement before the final instalment date |
| 31 March payment rhythm | Three dates, or two if six monthly GST | Six dates with GST | Six or twelve dates with GST |
| Use of money interest if you pay what the method asks, on time | Start date still depends on residual income tax under $60,000 or $60,000 or more | No charge or credit on the instalments. Interest can still apply if you owe more than $100 after the end of year date | No charge if paid in full and on time. Inland Revenue will not pay you interest if you overpay |
| Refund during the year | Wait for the return | Wait for the return | Inland Revenue: AIM is the only option that lets you request a refund of overpaid provisional tax in the current year |
| First year in business | No provisional tax during year one | No provisional tax during year one | Pay when you make a profit, even in year one |
| Tax pooling for the instalments | Available as normal provisional tax payments | Available as normal provisional tax payments | AIM instalments cannot go through a tax pool. Pooling can still be used for terminal tax and reassessments |
Inland Revenue: you will only pay provisional tax when your business makes a profit. If you make your AIM payments in full and on time, they will not charge use of money interest.
Interest detail for every option is on Inland Revenue’s interest on provisional tax page. Tax pooling groups normal provisional tax payments. Inland Revenue’s AIM technical note: AIM instalments cannot be made through a tax pool, but pooling can still be used for terminal tax and reassessments.
Who is allowed on ratio or AIM?
Ratio is narrower than AIM on GST history, and AIM is narrower on entity type. Inland Revenue’s ratio option page requires all of these: you have been in business and GST registered for the whole previous tax year and part of the year before that; residual income tax for the previous year (2020 or later) is greater than $5,000 and up to $150,000; you file GST monthly or two monthly; you are not a partnership; the ratio Inland Revenue calculates is between 0 and 100%. You must stop ratio if GST registration ends, a GST return is overdue by 60 days or more, you move to six monthly GST, or residual income tax drops below $5,000 or goes above $150,000.
AIM’s public page is for individuals and companies with yearly turnover under $5 million. Inland Revenue’s work out page adds: you use accounting software. Determination A1 says these classes must not use AIM: trustees and beneficiaries of a trust; partnerships; taxpayers with foreign investment fund or controlled foreign company investments; Maori authorities; portfolio investment entities; superannuation funds. The digital services eligibility page also excludes look through companies, income tax consolidated groups, and a transitional year where you changed balance date. If turnover later exceeds $5 million, IR289 says you can ask to keep using AIM.
You can change from the standard option to AIM or estimation at any time. You cannot change to the ratio option during the same year. IR289: if you are already on estimation, you must send your first AIM statement of activity by your first instalment date. If you are on standard or ratio, you can still choose AIM later, as long as that first statement is in before your final instalment date. Once you choose AIM for the year you cannot choose another option until next year. Inland Revenue also switches AIM accounts back to standard at the start of each tax year. Filing the first statement of activity for the new year puts you on AIM again. Miss two statements and they contact you. Keep missing and you may be moved to estimation, with use of money interest. They may charge a shortfall penalty if AIM (or estimation) payments are unreasonably low against residual income tax.
What happened in Inland Revenue’s avocado example
Use case: Lydia, avocado farmer (Inland Revenue)
Lydia earns her profit between September and April. On the standard option, last year’s assessment meant $120,000 of provisional tax, paid as $40,000 in August, January, and May. August is hard because the orchard cash arrives later. Inland Revenue’s compare page: AIM would calculate smaller, more frequent payments that line up with her statement of activity, and she could request a refund of overpaid tax in the current year instead of waiting until year end. AIM is the only option that allows that refund.
Action: if your quiet months sit on a standard August bill, open Inland Revenue’s how AIM compares page before you treat ratio as the same fix. Ratio still follows GST taxable supplies. A high sales winter with thin profit still pays ratio. AIM can include depreciation and other adjustments in the statement of activity. The provisional tax calculator models the standard and estimation dollar split. It does not replace AIM software or a ratio worksheet.
How is the ratio percentage worked out?
Inland Revenue works out the percentage. You do not pick it. Their work out page divides residual income tax for the last tax year by total GST taxable supplies for the same year. If last year’s figures are not available, they use the year before. IR289: the percentage is rounded down to 1 decimal place. Two monthly filers apply it to taxable supplies in each GST return. Monthly filers apply it to every second GST return.
That is why Inland Revenue’s fisher example overpays on ratio. John paid $59,800 of ratio instalments on GST taxable supplies. After depreciation in the end of year return, residual income tax was $47,800, so he waited for a $12,000 refund. AIM would have put the boat depreciation into the statement of activity during the year. Residual income tax is still the leftover tax after listed credits: that definition sits on what is residual income tax. GST timing beside these options sits on GST and provisional tax.
Trap: GST sales are not profit, and $60,000 is not AIM
GST registration looks at taxable supplies. Ratio looks at residual income tax greater than $5,000 and up to $150,000. Standard use of money interest still uses a residual income tax split at $60,000. None of those tests is AIM turnover under $5 million. Mixing them is how people end up on the wrong option. Partnerships cannot use ratio or AIM. Inland Revenue’s first year in business page: standard, estimation, or ratio has no provisional tax during that year, then income tax is usually due 7 February the following year (7 April with an agent). AIM can ask for money in year one as soon as software shows a profit.
Frequently asked questions
Can I switch from the standard option to AIM during the year?
Yes, if you are on the standard or ratio option. IR289: you can choose AIM at any time if you send your first statement of activity before your final provisional tax instalment date for the year, and you have AIM capable software. Once you choose AIM for the year you cannot choose another option until next year.
Is AIM the same as the ratio option?
No. The ratio option applies Inland Revenue’s percentage to GST taxable supplies. AIM uses approved software to work out tax from accounting profit, including items such as depreciation, trading stock, losses, and shareholder salaries. Ratio is sales. AIM is profit.
Do I pay provisional tax in my first year if I use AIM?
Yes, when you make a profit. Inland Revenue: if you use the standard, estimation, or ratio options, you will not need to pay provisional tax during your first year of business. If you use AIM, you will only pay provisional tax when you make a profit, even during your first year. Your first year is still not tax free.