Tax on allocated income from a PIE
How PIEs calculate the tax
Most PIEs will calculate their tax liability based on the prescribed investor rate (PIR) provided by their investors rather than at the entity's tax rate. This type of PIE is called a portfolio tax rate entity (PTRE).
PIEs that are not PTREs include:
- portfolio listed companies
- portfolio defined benefit funds, and
- portfolio investment-linked life funds.
These PIEs do not calculate their tax liabilities using their investors' PIR. Instead their tax liability is calculated using the entity's basic tax rate.
Your PIE and your prescribed investor rate (PIR)
The partners hold the investment. So, the partnership should split the investment and give the PIE the IRD number and PIR that applies for each partner/holder. That is, zero-rated portfolio investors would apply the 0% PIR while individuals would advise either the 19.5% or 30% rates determined by the taxable income received in the previous two years. Partners who are trustees would be able to choose 0% or 30%.
If the partners do not give the PTRE their PIR and IRD number, the PTRE will deduct PIE tax at the default rate of 30% which may be higher than the actual rate.
Limited partnerships will be treated as companies and must give a PIR of 0% and give their IRD number to the PTRE.
Which IRD number partners use
A partnership investor in a PTRE, including zero-rated portfolio investors, should give their partners'/holders' IRD numbers at the same time as they give their PIR or within one month of a request from the PTRE. Where the partners/holders have not given their IRD numbers to the PTRE, the default rate of 30% will be applied to the income allocated by the PTRE, which may be higher than the actual PIR applicable for the partner/holder.
Date published: 29 Jul 2008
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