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.
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.