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  1. Roles
  2. Portfolio investment entities

End-of-year portfolio investment entity (PIE) calculation

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  • Portfolio investment entities
    • Become a portfolio investment entity
    • End-of-year PIE calculation
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For the 2021 and future tax years if you’re an individual New Zealand tax resident who receives income from portfolio investment entities (PIEs), you'll have a PIE calculation on your annual income tax return or assessment. This is to work out if you’ve used the correct prescribed investor rate (PIR) and paid the right amount of tax.

Inland Revenue works out the PIE calculation separately to the income tax calculation. PIE income is taxed using a PIR, which can be a different rate than standard income tax rates.

We'll determine the correct PIR that should have been used for the full tax year. Then we'll work out if there is a difference between tax deducted and tax that should have been deducted on the PIE income or loss.

If you have paid too much tax on your PIE income, you'll have a PIE credit. This is added to any other income tax credits and may be used to reduce any tax to pay on your other taxable income.

If you have not paid enough tax on your PIE income, you'll have a PIE debit. If you have not used the correct PIR for the full tax year, this debit will be included as part of your tax on your other taxable income.

Treatment of PIE losses

When a multi-rate portfolio investment entity (PIE) investment makes a loss, the PIE claims a refund of tax paid from IR. The PIE may then issue a refund to the investor or increase their interest in the PIE. If the investor has not notified the PIE of their correct PIR, too much or too little tax may be refunded. As a result, even if a customer's investment made a loss their end of year PIE tax adjustment may result in a PIE credit or debit.

PIE losses do not reduce taxable income in the investor's tax return and cannot be carried forward. The PIE calculation is separate to the calculation of tax on taxable income.

Find my prescribed investor rate (PIR)

Portfolio investment entities (PIEs) for New Zealand residents

Example - credit

McKenzie gave the rate of 28% to her PIE for the tax year ending 31 March 2021.

McKenzie’s PIE has returned income of $1,345 and tax deductions of $376.60 for the year. 

The correct PIR determined by Inland Revenue for the 2021 tax year is 17.5%. 

Inland Revenue calculates that the correct tax at the rate of 17.5% is $235.38. This results in a PIE credit of $141.22. 

The income from McKenzie’s employer has had income tax under deducted of $70.23. 

The credit of $141.22 from the over deducted PIE income is offset against the income tax debit, resulting in a remaining refund of $70.99.

Example - debit

Cherise gave the rate of 10.5% to her PIE for the tax year ending 31 March 2021. 

Cherise’s PIE has returned PIE income of $575 and had tax deductions of $60.38 for the year. 

The correct PIR determined by Inland Revenue for the 2021 tax year is 28%. 

Inland Revenue calculates that the correct tax at the rate of 28% is $161. This resulted in a PIE debit of $100.62. 

Cherise has an income tax debit of $2,300 due to self-employed income. The PIE debit is added to the final calculation, resulting in an amount to pay of $2,400.62.

Example - PIE loss

Gabriela is a member of Smartfund KiwiSaver scheme which is a Portfolio Investment Entity. Gabriela qualified for a 17.5% PIR for the 2021 tax year, but as she never notified Smartfund of this, they used the default PIR of 28%.

In the 2021 tax year Gabriela's investment made a loss of $3,120.00. Smartfund issued a tax credit of $873.60 to Gabriella, which they calculated as 28% of $3,120.00. Gabriela's PIR should have been 17.5%, so too much tax has been credited.

When Gabriela receives her 2021 automatic calculation from IR, it shows her PIE loss and shows that she has a PIE debit of $327.60 which is added to tax on taxable income.

The PIE debit was calculated as follows:

PIE loss X Correct PIR = Correct PIE tax
    -$3,120.00 X         0.17.5 =     -$546.00
Correct PIE tax ‒ Actual PIE tax =     PIE debit
     -$546.00 ‒      -$873.60 =      $327.60

The reason Gabriela is being asked to pay $327.60 in tax when the PIE she invested in made a loss of $3120 is explained below:

  • When a multi-rate PIE makes a loss, the PIE exchanges the loss for a refund of tax paid that they may then credit back to the investor.  The refund is calculated by multiplying the loss by the PIR that the investor has used.
  • Gabriela’s loss was $3,120 and she had used a PIR of 28%.  The PIE would have received a tax refund for this loss of $873.60 based on Gabriela’s PIR rate.
  • Instead of paying the refund to Gabriela, the PIE would have given Gabriela extra units in the PIE to the value of $873.60.
  • However, her PIR should have been 17.5%, not 28%, so she has received more units than she is entitled to i.e. She has received $327.60 too much ($873.60 - $546.00 = $327.60).
  • IRD’s refund to the PIE should have only been $546.00 based on 17.5%.
  • Gabriela therefore has to pay the $327.60 back to IRD.

In summary, when a PIE exchanges the tax loss for a tax refund, the PIE will then provide the customer with a refund or additional units in the PIE.

Where the PIR was too high, the customer has received more back from the PIE than they were entitled to. They will have to pay back the value of the overpayment to Inland Revenue.

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    Last updated: 08 Jun 2021
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