PIEs and PIRs

The government has set up new tax rules for New Zealand-based managed funds and made changes to the way income from foreign investments is calculated. Under these rules, if a managed fund is a PIE (Portfolio Investment Entity), there will be some important tax advantages.

• Lower tax on PIE income
• Tax break for gains on disposal of NZ and overseas shares

(All KiwiSaver default schemes are PIEs, as well as many other KiwiSaver schemes and non-KiwiSaver superannuation schemes.)

Lower tax on PIE income

In most cases, lower-income investors in PIEs will be taxed at 19.5% on their fund or scheme income.

Upper-income investors in the 39% tax bracket will pay only 30% tax on their PIE income, from 1 April 2008.

Also, if:

• Your non-PIE taxable income is below $38,000 a year, and
• Your total taxable income - plus PIE income - is below $60,000 a year

Then all of your PIE income - including any amount above $38,000 - will be taxed at 19.5%.

The tax paid by a PIE on your behalf is in most cases a ‘final’ tax. If you normally don't file a tax return, you won't have to file one because you have invested in a PIE.

For more information about PIEs and PIRs, visit the Inland Revenue website.

Tax break for gains on disposal of NZ and overseas shares

In another tax break, PIEs that invest in New Zealand shares and many Australian listed shares won't be taxed on capital gains on those shares, even if the shares are traded frequently.

Where a PIE uses the new ‘fair dividend rate’ foreign investment fund calculation method, any gain on disposal on the overseas shares covered by that method does not form part of their taxable income. In the past, schemes that traded frequently did pay tax on that income.

For more information, visit the Inland Revenue website.