Frequently Asked Questions About Tax on Investment Income

1

What is a PIE?

PIE stands for Portfolio Investment Entity. These are special types of pooled investment funds which have a number of tax advantages. The main advantage is that individual investors can be taxed at their own marginal tax rate,  rather than the flat 33% rate which has previously applied to most pooled investments like superannuation funds. Investors nominate either 19.5% or 30% as their tax rate.

2
Is the Fund a PIE?
The Fund became a PIE from 1 October 2007 which is when the PIE tax regime started.
3
What is a PIR?
PIR stands for Prescribed Investor Rate. For individuals this is either 19.5% or 33%. It is the rate at which tax on your share of the Fund’s investment income will be paid.
4
How do I work out my PIR?
Your PIR is based on your taxable income in the last two tax years i.e. years ended 31 March. You should elect the 19.5% rate if:
  • Your gross taxable income in either of the last two years was less than $38,000, and
  • Your gross taxable income plus your PIE allocated income was less than $60,000.
Your gross taxable income includes your wages, interest, rents etc. At the moment there is no PIE allocated income as the PIE tax regime does not start until 1 October 2007.

If your income is over these limits then your tax rate is 33%. The 33% rate is expected to reduce to 30% from 1 April 2008.
5
Can I change my PIR?
Yes, you can change your PIR by completing a new declaration. The new rate will only be applied from the time the Fund receives it. It cannot be backdated.
6

What tax does the Fund pay?

The Fund pays tax on its investment income. The amount  of tax varies depending on the type of investment. As a PIE the Fund will pay these taxes:

  • NZ Shares –dividends are taxed
  • Australian Shares – most are taxed on dividends but a few are taxed the same as global shares
  • Global Shares –A number of options exist but generally tax is based on 5% of the opening market value of the shares .
  • Property – net rental income is taxed
  • Fixed Interest – interest income and changes in market value is taxed.

The tax payable is calculated on each member’s share of taxable income at the member’s individual tax rate.

7
Do I have to pay any tax?
No, the tax the Fund pays on members’ behalf is meant to be a final tax. As long as you give us the correct PIR there is no further tax payable. However, if you give us a rate of 19.5% when your rate should be 33% then IRD may require you to complete a tax return and pay more tax. They may also impose penalties on the unpaid tax.
8
What about refunds?
No, if you give the Fund a rate of 33% when your rate should be 19.5% the IRD will not pay any refunds.