Timing of the cessation

Cessations in the first 12 months

A portfolio investment entity (PIE) that ceases within 12 months of its commencement date is deemed never to have been a PIE. If the cessation occurs before its first PIE tax calculation or the first income tax or PIE return is due and is within the first 12 months there should generally be no tax implications. Otherwise, all:

• returns
• payments
• refunds or credits
• statements
• reconciliations, or
• any other document or transaction

that arose after the PIE commencement date are required to be undone. This may be a complicated process completed over a lengthy period.

Factors to consider in such cessations

• PIE income included in PIE returns filed may need to be included in the income tax return that covers the periods for which PIE returns were previously filed. This will require adjustments to the income and tax calculation bases which we will not be able to complete. This will have to be done by the PIE or tax agent and will require requests for amendment to the income tax return filed to the date of PIE commencement, through the existing objection/tax adjustment process, to the income tax return file from the date of PIE commencement to its cessation.
• Payments made by the PIE will have to be transferred or refunded as instructed. Where no instruction is received PIE payments made will be transferred to current income tax.
• Refunds previously issued that are required to be repaid will accrue interest until the repayment has been made.
• Tax revenues ceased as a consequence of becoming a PIE may be reinstated and income previously assessed as PIE income may be required to be taxed under those revenue types. Likely revenues affected include:
  • NRWT (non-resident withholding tax)
  • imputation credit
  • FDP (foreign dividend payment), and
  • RWT (resident withholding tax).

• Distributions paid by the PIE and treated under the PIE rules as excluded income may now be treated as taxable income.
• Investor statements issued to investors will be incorrect and may affect their tax positions.
• Any deemed disposal and reacquisition of shares at market value at the time of becoming a PIE needs to be reversed, including any spreading of additional income arising.
• Certain PIEs are required to cancel any ICA credit balances to Nil by 31 March following the PIE's commencement date. Credit imputation memorandum account balances reduced to Nil as a consequence of becoming a PIE need to be reinstated.

Cessations after the first 12 months

If the PIE ceases after the first 12 months all assessments made to the date of cessation are valid to the date of cessation. A transitional adjustment of shares may be required. Depending on the type of PIE it was, a balance date adjustment may also be required.

Date published: 06 Oct 2010

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