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Tax on PIE income

How the PIE uses your PIR to calculate tax

A PIE that is not a:

  • company listed on the New Zealand stock exchange that is not a multi-rate PIE, or
  • benefit fund, or
  • certain life fund

will use your prescribed investor rate (PIR) to calculate the tax on the income from your investment.

The PIR is based on your taxable income in the last two income years, for example, income from salary, wages and any additional sources of income that you would include in your income tax return. You cannot elect a rate or use a "blended" rate.

Tax on PIE income that does not have to be included in your tax return will be paid by the PIE.

The PIE attributes its income/loss, expenses and tax credits across each day in the year. Tax is calculated at the rate that applies to each of the days in the year.

If you change your rate during the year:

  • some PIEs are able to apply the change to the whole year
  • others can only apply it for the current period, and
  • others will apply it going forward.

For the 2011 income year there was a change of rates during the year. Most multi-rate PIEs will calculate the tax for the period 1 April 2010 to 30 September 2010 using your rate as per the first column and then from 1 October 2010 to 31 March 2011 use the rate in the second column.

Your PIE will automatically change your rate as follows:

Rates for period 1 April 2010 to 30 September 2010 Rates from 1 October 2010
30% 28%
21% 17.5%
19.5% 17.5%
12.5% 10.5%
0% 0%
Default rate 30% 28%

If you are a new resident

From 1 April 2012, new residents are required to use their worldwide income and not just New Zealand-based income. If, however, they reasonably expect that their taxable income in the first two resident years will be significantly lower than their total income from all sources for the income year, they may choose not to include the income from outside New Zealand. If you choose to not include your worldwide income the PIE income is no longer excluded income and must be included in your income tax return. The income will then be taxed at your marginal tax rate that may be higher than the 28% top resident PIR.

If you are a transitional resident

Transitional residents who invest in a foreign investment zero-rate PIE may also choose the zero prescribed investor rate for the income from that PIE.

New PIRs for non-residents

Previously non-residents investors could only use the 28% PIR. This means they are over-taxed in comparison with the tax rates they would face if they invested directly in the assets in the PIE. In particular, in the case of direct investment by a non-resident into foreign-sourced assets, the income is not subject to New Zealand tax.

Two new categories of PIE have been introduced that correct this treatment.

  1. A zero-rate PIE that invests the vast majority of its funds offshore. This PIE applies the 0% prescribed investor rate to all income attributed to notified foreign investors.
  2. A foreign investment variable-rate PIE that invests its funds both in New Zealand and offshore. Foreign investors in this category of PIE face various tax rates, depending on the source and type of the income.

New prescribed investor rates for non-residents have been introduced that apply to various types and sources of income attributed to non-residents. A non-resident investor that meets the criteria and notifies their foreign investment PIE can become a notified foreign investor. The variable-rate PIE then applies the following rates:

Category Rate
  1. A dividend derived from a company resident in New Zealand attributed to an investor who does not reside in a country with which New Zealand has a double tax agreement, to the extent it is not fully imputed
30%
  1. An amount other than an amount referred to in 1, and 3 to 5, that has a source in New Zealand
28%
  1. A dividend derived from a company resident in New Zealand attributed to an investor who resides in a country which New Zealand has a double tax agreement with, to the extent it is not fully imputed
15%
  1. Interest derived.
1.44%
  1. A fully-imputed dividend derived from a company resident in New Zealand.
0%
  1. A foreign-sourced amount.
0%
  1. An amount derived under a financial arrangement that has a source in New Zealand other than an amount of interest referred to in 4.
0%

Other investors in either type of foreign investment PIE continue to have the existing PIR applied.

Note

If we identify you are not using the correct rate we can tell the PIE to change your rate.

 

Note

A PIE listed on the New Zealand stock exchange that is not a multi-rate PIE may continue to pay dividends. As a New Zealand resident individual investor you can choose whether or not to include the dividends in your tax return.

When your PIE income is derived

Your PIE income is derived in your income year which includes the end of the PIE's income year. See the following examples.

If you have a ... and the PIE you invest in has a ... then as the end of the PIE's 2012 income year falls ...
30 June 2012 balance date which is your 2012 income year 31 March 2012 balance date within your 2012 income year, your income for the 2012 income year will include the attributed income from the PIE up to 31 March 2012.
31 December 2011 balance date, which is your 2012 income year 31 March 2012 balance date after the end of your 2012 income year, the attributed income from the PIE for the year ended 31 March 2012 will fall into your 2013 income year.