Tax on allocated income from a PIE
How PIEs calculate the tax
A PIE that is not a:
- company listed on the New Zealand stock exchange, or
- defined benefit fund, or
- portfolio investment-linked life fund
will use your prescribed investor rate (PIR) to calculate the tax on the income from your investment.
Resident companies that invest in PIEs have a PIR of 0%, ie they are zero-rated portfolio investors. (Non-resident companies have a PIR of 30%).
PIEs that are either defined benefit funds, listed companies or portfolio investment-linked life funds do not allocate income to investors.
Companies investing in:
- listed PIEs will continue to receive dividends
- defined benefit funds or investment-linked life funds will derive income on realisation.
Your PIE and your prescribed investor rate (PIR)
If you don't give your PIR to your PIE then the default rate of 30% applies.
As a resident company is treated as a "zero-rated portfolio investor" regardless of the default rate being applied, the allocated income is:
- not treated as excluded income, and
- must be included in your tax return.
You are not entitled to a rebate.
Your allocated income from the PIE and your tax return
When to complete the tax return if you receive allocated income from the PIE
You will continue to file your IR4 and IR4J tax returns by the usual return filing dates.
Unless you have an extension of time to file a tax return, filing dates are:
- 7th of the fourth month after balance date for taxpayers with a late balance date, (ie 1 April to 30 September), or
- 7 July following the end of the tax year for taxpayers with other balance dates.
What goes in your tax return if you have income allocated from a PIE
As a company is a zero-rated portfolio investor, all allocated income from the PIE must be included in your tax return (in the "overseas income" panel) and will be assessed along with any other income you receive.
| If the PIE is ... | then ... | and ... |
|---|---|---|
|
a company listed on the NZ stock exchange |
it may continue to pay dividends |
the dividends, unless these amounts exceed the total of fully-imputed distribution, will be non-excluded income and must be included in your tax return. Any excess is treated as excluded income and does not have to be included in the tax return. |
|
distributions received are treated as excluded income |
do not have to be included in your tax return. |
If you withdraw your investment from a PIE you should include the income in the tax return that includes the end of the PIE's income year in which the withdrawal occurred.
If your investment in the PIE is in overseas markets, you do not have to include this for the purposes of the foreign investment fund (FIF) rules. Any calculations under the FIF rules will be made by the PIE.
When your allocated income from the PIE is derived
If you have a balance date other than 31 March, your allocated income from the PIE is derived in your income year which includes the end of the PIE's income year to which your income relates. See the following examples.
| If you have a ... | and ... | then ... |
|---|---|---|
|
30 June 2009 balance date which is your 2009 income year |
the PIE you invest in has a 31 March 2009 balance date |
as the end of the PIE's 2009 income year falls within your 2009 income year, your income for the 2009 income year will include the allocated income from the PIE up to 31 March 2009. |
|
31 December 2008 balance date, which is your 2009 income year |
the PIE you invest in has a 31 March 2009 balance date |
as the end of the PIE's 2009 income year falls after the end of your 2009 income year, the allocated income from the PIE for the year ended 31 March 2009 will fall into your 2010 income year. |
PIE income and foreign tax credits
Foreign tax credits available will generally be the lesser of:
- the amount of the allocated credits, and
- the amount calculated by multiplying the income allocated by the PTRE by the company's tax rate.
PIE income and New Zealand tax credits
The amount of the allocated New Zealand tax credits flow directly to the company. Limitations to the credits able to be claimed may arise in the company's income tax return.
Allocated income from a PIE and your provisional tax
As a zero-rated portfolio investor, your exposure to a provisional tax liability may change.
Previously distributions from your collective investment vehicle (CIV) may have attached credits that could be used against company's income tax liability. Under the PIE rules those credits may no longer be available. See the example below.
Example
| 2007 (pre-PIE rules) | 2008 (under PIE rules) | ||
|---|---|---|---|
| Income received from CIV | $10,000 | $10,000 | |
|
Credits attached |
$1,500 | $1,500 | |
|
Tax paid (by CIV) |
$1,800 |
(by PIE -zero-rated) |
$ 0.00 |
|
Investor tax due |
$3,300 | $3,000 | |
|
Less credits |
$3,300 | $1,500 | |
|
Balance due |
$0.00 | $1,500 | |
Changes to your investment and your tax liability
There may be tax implications if you:
- withdraw all or part of your investment, or
- change the class of the investment .
Withdrawing your investment
When the PIE allocates PIE income, the company should include that income in the tax return that includes the end of the PIE's income year when the withdrawal occurred.
Changing the class of your investment
If the investor withdraws from a portfolio investor class and reinvests the funds in another portfolio investor class of the same PIE, then the PIE can treat the change of class as a partial withdrawal and calculate tax at that time.
Date published: 21 Jul 2008
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