Your obligations and the impact on your tax return
Certain PIEs will ask you for your prescribed investor rate (PIR) and IRD number and should tell you the date that they need them by.
You must give the PIE the PIR that applies to your investment as well as your IRD number.
Giving the wrong PIR to your PIE
| If ... | then ... | Note ... |
|---|---|---|
|
you realise that you have given the PIE the wrong PIR |
you should tell them the correct rate as soon as possible. |
If the PIE has not done their tax calculation for the period (quarter or annual), they may be able to adjust it for the correct amount of tax. |
|
the PIE cannot adjust for the correct rate, and there has been an under-deduction |
you will need to file a tax return to account for the under-deduction. |
Shortfall penalties may apply. |
|
you have used a rate higher than your correct rate and the PIE has already calculated the tax on your investment for the period |
it will be a final tax. |
There won't be any refund for over-deductions. |
Including the income in your tax return if a default PIR has been applied
| If the default PIR of 30% has been applied but you should have had a PIR of ... | then you ... |
|---|---|
|
19.5% |
cannot include the income in your income tax return to get a refund of the balance. |
|
0% |
are correctly a zero-rated investor and your allocated income must be included in your tax return. |
Trusts
If a trustee chooses a 0% PIR or has the 30% default rate applied
In this case there will be impacts for the trust's provisional tax and the beneficiaries.
The PIE income will be taxable in the trust return.
If you treat the income as beneficiary income then you calculate the tax at the beneficiaries' tax rate.
It may be difficult to treat this income as beneficiary income if there is no cash distribution made by the PIE.
Generally the level of tax credits associated with the income will be lower than when the income was a dividend from your investment fund. This may place the trust in the position of having residual income tax greater than $2,500 and make you:
- liable to provisional tax, and
- potentially liable to use-of-money interest and penalties.
See the example below.
If a trustee chooses a 30% PIR
In this case, the PIE income is excluded income and does not need to be included in either the trust or beneficiaries' taxable income in their tax returns.
See the example below.
Example of PIE tax treatment for each rate
| Step | 30% | 0% |
|---|---|---|
| Income received from the PIE is | $10,000 | $10,000 |
| Tax credits attached to the income are | $500 | $500 |
| Tax paid by the PIE is | $2,500 | $0 |
| Total tax attached | $3,000 | $500 |
The trustee allocates the income to the beneficiary and chooses a PIR of 30%
| If the beneficiary's personal tax rate is ... | then the tax payable is not included in the return and the net tax payable is ... | so the net result for beneficiaries is ... |
|---|---|---|
| 39% | nil | $900 |
| 33% | nil | $300 |
| 20.25% (annual rate*) | nil | -$975 |
| 16% (annual rate*) | nil | -$1,400 |
The trustee allocates the income to the beneficiary and chooses a PIR of 0%
| If the beneficiary's personal tax rate is ... | then the tax payable is ... | less the tax paid by the PIE leaves ... | so the net tax payable is ... |
|---|---|---|---|
| 39% | $3,900 | $500 | $3,400 |
| 33% | $3,300 | $500 | $2,800 |
| 22.25% (annual rate*) | $2,025 | $500 | $1,525 |
| 16% (annual rate*) | $1,600 | $500 | $1,100 |
* Allowing for the tax rate changes applying from 1 October 2008.
In this case the trust would end up with a provisional tax liability of:
- $3,400 for the 39% tax rate
- $2,800 for the 33% tax rate
- $0.00 the 20.25% rate
- $0.00 for the 16% rate.
Non-residents
If you are a a non-resident individual, then your PIR is a prescribed rate of 30%. You cannot elect a rate.
Additional information
Prescribed investor rate examples
Date published: 30 Sep 2008
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