Tax on attributed income from a PIE

How PIEs calculate the tax

A PIE that is not a:

• listed PIE that is not a multi-rate PIE
• benefit fund PIE, or
• life fund PIE that is not a multi-rate PIE

will use the trust's chosen prescribed investor rate (PIR) to calculate the tax on the income from the investment of the trust's contributions.

You as the New Zealand resident trustee can choose a PIR of 28%, 17.5% or 0%, whichever you accept is in the best interest of the beneficiaries. Trustees of testamentary trusts may also choose 10.5% PIR.

If you choose a PIR of 28%, the PIE will pay the tax related to your attributed income on your behalf. This attributed income will not be included in the trust's tax return.

The PIE and the prescribed investor rate (PIR)

Resident trustees investing in a PIE can choose either:

• 28% as a final tax, applied to income and losses, or
• 17.5, 10.5% or 0% and have the income included as trustee/beneficiary income.

Trustees of charitable trusts can only use the PIR of 0%.

Choosing a PIR of 0% allows the tax credits as well as the attributed income to flow through to the trust return. If the tax credits are not sufficient to cover the tax liability on the trust income, either as trustee or beneficiary income, the trust will need to pay the extra tax.

If the extra tax means the trust has tax to pay of $2,500 or more, the trustees should also consider the impacts on their provisional tax liability.

10.5% or 17.5% PIR

Resident trustees can choose a PIR of 17.5% or 10.5%. The attributed income would form part of the trust's (or beneficiaries') assessable income. If the PIE attributes a loss for the year, the loss is not able to be claimed as a deduction as the trust has already received credit at the PIR from the PIE.

If ...	then ...	Note ...
you don't give your PIR to the PIE	the default rate of 28% applies.	The resident trustee is treated as a "zero-rated investor" because they did not choose the PIR of 28%. Despite the default rate being applied, the attributed income: is not treated as excluded income, and must be included in the trust return.   Although the resident trustee will receive tax credits for the tax paid by the PIE, there is no entitlement to a refund of the tax paid in the event that the tax credits exceed the tax payable.
the beneficiaries have different rates	the resident trustees can collectively choose either 0%, 17.5% or 28% to best suit the beneficiaries of the trust. Trustees of testamentary trusts may also choose 10.5% PIR.	Multiple PIRs cannot be applied to the investment, although you can change the rate if you realise that the incorrect rate has been applied. As the PIR is prescribed, you cannot use a blended rate.
you are a non-resident trustee of a trust	you must use a PIR of 28%.	Only the resident trustee can choose a PIR of 28%, 17.5%, 10.5% or 0%.

The PIE may acknowledge the PIR that the trustees have advised it to apply. If the trustee has any queries about whether the PIE has received the PIR they should contact the PIE to confirm.

Wrong PIR

If you realise that you have given the PIE the wrong PIR then you should notify the PIE as soon as possible. If the PIE has not done their tax calculation for the quarter or the period, they may be able to adjust it for the correct amount of tax. If you have had a final tax calculation at 28% then change the PIR, no refund is available as the income taxed at 28% stays as excluded income.

Multiple PIEs

Resident trustees may notify different rates to different PIEs to best suit the beneficiaries.

At the end of the year

Before the end of the year you should review the trust's PIR for the following year.

 

Date published: 30 Aug 2011

Back to top