Portfolio investment entity (PIE) entry rules - entity-specific requirements

• Rights to investment proceeds
• Minimum number of investors
• Investor membership requirement for an entity other than a listed PIE
• Minimum investor requirements for a listed PIE
• Exceptions to the minimum investor requirement
• Investor return adjustment requirement
• Imputation credit distribution requirement
• Maximum investor interest requirement
• Exceptions to the maximum investor interest requirement
• Investor type requirement
• Income source requirement
• Entity shareholding investment requirement
• Class shareholding investment requirement
• Consolidated groups
• Multi-rate portfolio investment entities (MRPs)
• PIEs other than multi-rate portfolio investment entities (MRPs)
• Foreign investment PIEs

Rights to investment proceeds

This requirement applies to multi-rate PIEs, listed PIEs and life funds PIEs. Under this requirement all investor interests in the entity must give the same rights in relation to the proceeds from the investments of the entity (other than category B income).

Minimum number of investors

This requirement applies differently to listed PIEs and entities other than listed PIEs.

There is also an exemption from this requirement for an investor class that meets the definition of certain superannuation funds and entities similar to unit trusts.

Investor membership requirement for an entity other than a listed PIE

Each investor class of an entity other than a listed PIE must satisfy at least one of the following requirements for an entity to be eligible to elect to become a PIE.

Generally, for an entity to be eligible to elect to become a PIE, other than a listed PIE, each investor class of the entity must have at least 20 persons, treating interests held by "associated persons" as being held by one person where the investor and the associated person each hold at least a 5% interest in the investment.

Under the PIE rules associated persons are only deemed to be associated for the purposes of the minimum number of investors for an entity other than a listed PIE if:

• both the investor and the associated person have investor interests of 5% or more, and
• the investor and associated person are not any of the following:
  • a portfolio investment entity
  • a foreign PIE equivalent
  • an entity that could be a PIE but has chosen not to be a PIE
  • a life insurer
  • the New Zealand Superannuation Fund
  • the Accident Compensation Corporation
  • a Crown entity subsidiary of the Accident Compensation Corporation
  • the Earthquake Commission
  • Auckland Council.
  • a community trust
  • a public unit trust.

 

For more information on the associated persons rules see booklet A guide to associated persons definitions for income tax purposes (IR620) - go to "Forms and guides".

There are exceptions to the minimum investor requirement:

An investor class can have less than 20 persons if (boutique investor class):

• the entity has one or more other investor classes that have at least 20 persons, and
• no investor in the class, other than the entity's manager or trustee, can control the investment decisions relating to that class, and
• no investors in the class have investor interests of more than 10% of the total value of investor interests in the entity.

The minimum investor requirement for an entity other than a listed PIE is also satisfied where the following entities invest in the PIE:

• a portfolio investment entity
• a foreign PIE equivalent, that is an entity that, had it been resident in New Zealand, would:
  • have investors in an investor class that would meet the minimum investor requirements, and
  • meet the investment type requirements and the maximum investor interest requirements (see further eligibility requirements), and
  • be eligible to become a PIE if it elected to do so.
• an entity that could be a PIE but has chosen not to be a PIE
• a life insurer
• the New Zealand Superannuation Fund
• the Accident Compensation Corporation or a Crown entity subsidiary of the Accident Compensation Corporation
• the Earthquake Commission
• Auckland Council
• a community trust
• a public unit trust.

Minimum investor requirements for a listed PIE

• the company must not have more than one investor class of investors holding portfolio investor interests in the company, and
• each investor must be a member of the investor class, and
• each investor interest in the company must be a share traded on a recognised exchange.

Exceptions to the minimum investor requirement

• there is no investor membership requirement for an investor class or PIE if, had the class or PIE been treated as a unit trust, it would meet certain requirements of being a public unit trust.

• is a superannuation fund established under the proposal for the restructuring of the National Provident Fund required by the National Provident Fund Restructuring Act 1990,
• is the Government Superannuation Fund,
• is a fund that existed before 17 May 2006 and subsequently, if treated as a unit trust would meet certain requirements of being a public unit trust, where only the fund's manager or trustee can exercise control of the investment decisions of the investor class.

Investor return adjustment requirement

This requirement applies to MRPs.

The entity must make an adjustment to reflect the effect of the rate of an investor, as a member of an investor class on:

• the amount of the entity's entity tax liability for the investor class, and
• the amount of a tax credit attributed to the investor as a member of the investor class.

To satisfy the PIE's tax liability an adjustment must be made to:

• the investor interest of each investor (an "investor interest" is an interest in a PIE that gives the holder an entitlement to a distribution of proceeds from an entity investment of the entity), or
• the amount of each distribution to each invest, or
• the amount of any payment required by the investor.

Find out more about investor return adjustments.

Imputation credit distribution requirement

The imputation credit distribution requirement only applies to listed PIEs.

All distributions to members of an investor class must be fully imputed for the purpose of establishing the available subscribed capital amount (the extent that imputation credits are available is determined by the directors of the entity).

Maximum investor interest requirement

Generally an investor (or the combined interest of the investor and associated person) in an investor class may not hold more than 20% of the total investor interests of investors in the class.

Exceptions to the maximum investor interest requirement

1. There is no maximum investor interest requirement for an investor class if:
   • the investor class, if treated as a unit trust, would meet certain requirements of being a public unit trust
   • it is a superannuation fund established under the proposal for the restructuring of the National Provident Fund required by the National Provident Fund Restructuring Act 1990
   • it is the Government Superannuation Fund
   • it is a superannuation fund that existed before 17 May 2006 and subsequently, if treated as a unit trust would meet certain requirements of being a public unit trust where only the fund manager or trustee can exercise control of the investment decisions of the investor class.
2. An entity that has an investor that is an entity listed below may hold more than 20% of the total investor interests of investors in a class:
   • a portfolio investment entity
   • a foreign PIE equivalent
   • an entity that could be a PIE but has chosen not to be a PIE
   • a life insurer
   • the New Zealand Superannuation Fund
   • the Accident Compensation Corporation or a Crown entity subsidiary of the Accident Compensation Corporation
   • the Earthquake Commission
   • Auckland Council
   • a community trust
   • a public unit trust.
3. An investor, who is not an entity listed in 2 above who invests in a listed PIE can on a date after 30 September 2007 hold an investor interest of more than 20%, but not more than 40%, in an investor class of the company, as long as the investor has held the interest that is more than 20% and not more than 40% on each day since 17 May 2006. Where the investor falls below the 20% threshold on a day in the period, the exception can no longer apply, and the investor or the combined interest of the investor and associated person in an investor class, may not hold more than 20% of the total investor interests in the class.

(See also the impacts of the combined interests of associated persons referred to under the minimum investor requirement)

Investment type requirement

At least 90% or more by value of the entity's assets must be:

• an interest in land
• a financial arrangement
• an excepted financial arrangement
• a right or option concerning the above types of property.

Income source requirement

At least 90% of the entity's income must:

• be derived from property listed under the investment type requirement above, and
• consist of the following:
  • dividends
  • replacement payments (under a share-lending arrangement)
  • income treated under the financial arrangements rules as being derived by the entity
  • income under a lease of land (excludes income from associates)
  • proceeds from the disposal of property listed under the investment type requirement above
  • FIF income
  • attributed PIE income
  • distributions from superannuation funds

Entity shareholding investment requirement

Generally a PIE should not hold more than 20% of the voting interests in a company if the company is not a unit trust, or have a market value of no more than 20% of the total market value of all shares in the company if the company is a unit trust.

The 20% limit can be exceeded where the total of such interests do not exceed 10% of the total market value of all the entity's investments.

Specifically excluded from this requirement are investments that include shares in:

• a PIE or an entity that is eligible to be a PIE
• a foreign PIE equivalent
• a land investment company.

Class shareholding investment requirement

The class shareholding investment requirement is the same as the entity shareholding investment requirement, except that it is applied for each investor class, rather than for the PIE as a whole.

Consolidated groups

There are special rules regarding a member of a consolidated group becoming a PIE.

Multi-rate portfolio investment entities (MRPs)

Where there are two or more companies and one of them is an MRP, provided that the MRP owns 100% of the other companies and the other companies fall within the definition of " land investment company" (that is, 90% of its investments are in land or land-owning companies), the companies are treated as being a group of companies.

PIE returns must be filed under the PIE rules which will include income of non-PIE members of the consolidated group. The consolidated group must satisfy the investment type and income source eligibility requirements. That is, the non-PIE members have a less than 10% interest in the assets and income of the consolidated group. We will record the PIE registration under the consolidated group IRD number, as the filing member.

PIEs other than multi-rate portfolio investment entities (MRPs)

A group of companies may include a PIE other than an MRP.

If the intention is for the whole group to be a PIE, then each company, provided they satisfy the eligibility requirements, should register and become a PIE. The consolidated group tax return, IR 4 or IR 44, would be completed using the PIE rules. That is income tax returns must be filed under the annual income tax basis. We will also record the PIE registration under the consolidated group IRD number.

Where one or more companies within a group, but not the whole group, elect to become PIEs the business activities of the companies in the group that do not become PIEs must not breach the income source requirement for the group as a whole. Income tax returns must be filed under the annual income tax basis. We will also record the PIE registration under the consolidated group IRD number.

While losses within a group can be transferred between the members of the group the losses cannot be passed out to the shareholders.

Foreign investment PIEs

A foreign investment PIE must meet the general eligibility requirements to be a multi-rate PIE, and also:

• cannot use the provisional tax filing option
• cannot:
  • have an interest including a right or option in relation to New Zealand-based land, or
  • derive income from land including from the disposal of land
• must, as a variable rate PIE:
  • identify the income source and investment type for New Zealand-based income for notified foreign investors, and
  • apply the appropriate prescribed investor rate for each amount
• cannot carry voting interest of more than 20% for a company or an entity that qualifies for PIE status for an investment in a resident land investment company. For a unit trust it must have a market value of all interests in the entity of no more than 20%
• must obtain the additional investor level information requirements for notified foreign investors and annual confirm their current status.
• for a zero-rate PIE cannot derive income other than from foreign sources and amounts that come within the thresholds.

 

Date published: 30 Aug 2011

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