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
- defined benefit fund ,or
- portfolio investment-linked life fund
and has not chosen to be a portfolio tax rate entity 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 30%,19.5% or 0%, whichever you accept is in the best interest of the beneficiaries.
If you choose a PIR of 30%, the PIE will pay the tax related to your allocated income on your behalf. This allocated income will not have to 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:
- 30% as a final tax, applied to income and losses, or
- 19.5% or 0% and have the income included as trustee/beneficiary income.
Note
If you choose the 19.5% PIR and the PIE allocates a loss, the loss and PIE tax details do not go into the trust's tax return.
Resident trustees can collectively choose either 0%, 19.5% or 30% to best suit the beneficiaries of the trust.
Trustees of charitable trusts can only use the PIR of 0%. Choosing a PIR of 0% allows the tax credits as well as the allocated 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.
19.5% PIR
Resident trustees can from 1 April 2009 choose a PIR of 19.5%. The allocated income would form part of the trust's (or beneficiaries') assessable income. If the PIE allocates a loss for the year, the loss is not able to be claimed as a deduction as the trust has already received credit at 19.5% PIR from the PIE.
| If ... | then ... | Note ... |
|---|---|---|
| you don't give your PIR to the PIE | the default rate of 30% applies. |
The resident trustee is treated as a "zero-rated investor" because they did not choose the PIR of 30%. Despite the default rate being applied, the allocated income:
Although the resident trustee will receive tax credits for the tax paid by the PIE, there is no entitlement to a rebate in the event that the tax credits exceed the tax payable. |
| the beneficiaries have different rates | the resident trustees can collectively choose either 0%, 19.5% or 30% to best suit the beneficiaries of the trust. | 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 30%. | Only the resident trustee can choose a PIR of 30%, 19.5% 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 change the PIR from 30% to 0% no refund is available.
Multiple PIEs
Resident trustees can choose a PIR of 0%, 19.5% or 30% to best suit the beneficiaries. Resident trustees can apply different PIRs to different PIEs.
At the end of the year
At the end of the year you should review the trust's PIR for the following year.
Date published: 10 Nov 2009
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