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Tax Changes Update 2010 

Portfolio Investment Entities (PIEs)

Most of TOWER's managed funds are Portfolio Investment Entities (PIEs).  A PIE is a special tax investment entity type which enables fairer taxation of investment income for investors.

Generally, non-PIE managed funds are taxed at a flat rate (currently either 30% or 28%) regardless of the marginal tax rates of individual investors in the fund.  PIE funds allocate taxable income to each investor and tax is calculated on that share of income at the investor’s Prescribed Investor Rate (PIR).

Prescribed Investor Rates (PIRs)

Prescribed Investor Rates (PIRs) are the rates of tax that can be applied to the taxable income allocated to an investor in a PIE. The PIR that is applied to an investor’s share of the PIE’s taxable income determines the amount of tax that will be paid by the PIE on the investor's behalf.  It is therefore very important that TOWER has the correct PIR on record for each investor. If you don’t advise your PIR and IRD number to TOWER you will be taxed at the top PIR.

The 2010 budget, released in May 2010, included the lowering of the PIRs for investments in Portfolio Investment Entities (PIEs) from 1 October 2010.  These changes are in addition to the changes to rates and criteria that came into affect from 1 April 2010.  PIRs will automatically be updated at 1 October by TOWER to the equivalent rate in the same PIR band, so you don’t need to do anything unless you have not already told us your correct PIR.  The PIR for each six month period of the 2011 tax year will be applied to the taxable income allocated to you in each six month period.

Individual NZ resident investors:

Income Criteria PIR 1 April 2010 to 30 September 2010 PIR from 1 October 2010
In either of the last 2 income years your taxable income was $14,000 or less and your total income (including PIE income) was $48,000 or less (Low PIR Band)

 

 

12.5%

 

 

10.5%

In either of the last 2 income years your taxable income was $14,000 or less and your total income (including PIE income) was more than $48,000 but not more than $70,000 (Mid PIR Band)

 

 

21%

 

 

17.5%

In either of the last 2 income years your taxable income was $48,000 or less and your total income (including PIE income) was $70,000 or less (Mid PIR Band)

 

 

21%

 

 

17.5%

In all other cases for individual NZ resident investors (Top PIR Band)

 

30%

 

28%

Other investors:

Investor Type PIR 1 April 2010 to 30 September 2010 PIR from 1 October 2010 
Non-resident investor

30%

28%

Company, unit trust, charity or non-profit organisation

 

0%

 

0%

 Trust (excluding charitable trusts and unit trusts

Choose 0%, 21%, or 30% depending on what best suits your beneficaries (Note: trustees of testamentary trusts may also choose 12.5%)

 Choose 0%, 17.5%, or 28% depending on what best suits your beneficiaries (Note: trustees of testamentary trusts may also choose 10.5%)

To ensure you are taxed at the correct rate please contact TOWER on 0800 379 372, or investments@tower.co.nz and supply your correct PIR with your IRD number.

Below is a list of frequently asked questions about taxation of PIEs.  Please click on the question for the answer.

Tax or Portfolio Investment Entities expand this category
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How are tax payments or refunds managed where a fund is a PIE? view answer close
  • TOWER manages this on behalf of the investor, and informs the investor of the details in an annual tax statement.  Details will also be included in an investor's annual or 6 monthly statements.
  • Tax is calculated on a daily basis and paid/refunded at the end of each tax year, or on a withdrawal. 
  • If the PIR is not 0% the fund will determine any tax payable/receivable and adjust the investor's unit holding for this amount.  Certain non-individuals may also be required to deal with this income and any PIE tax paid in their tax return.
  • If the PIR is 0%, the fund will advise the investor of the income and tax credits allocated to them and the investor will include the income and get the benefits of tax credits in their tax return.
How can I update my PIR online? view answer close
If you need to work out your PIR you can do so by using the calculator online hereOpens in a new window.
What if I get my PIR wrong? view answer close
  • Investors can change their PIR at any time by providing a new rate and their IRD number at the same time to TOWER. The new PIR will apply to any future tax calculations.
  • If an investor elects a rate which is lower than the correct rate, they may have to pay additional tax and penalties at a later date.  
  • If an investor elects or defaults to a higher rate than they are entitled to, there is no ability to reclaim any overpaid tax.  It is therefore important to accurately advise your PIR.
How are joint investors treated? view answer close
  • Joint investors must each elect a PIR and PIE tax will be deducted at the highest PIR applicable to any of the investors. 
  • If joint investors want to be taxed independently at their individual PIR, the investment cannot be held jointly.
What happens if an investor wishes to withdraw from a PIE fund? view answer close
  • Withdrawals will be paid to the investor net of any applicable PIE tax.  For a NZ resident individual investor, no further tax will be payable by the investor on the amount withdrawn, unless the investor has advised a PIR lower than the PIR they are allowed.  Investors on the 0% PIR and certain other non-individual investors are required to include the PIE income and tax credits  related to any withdrawals, in their tax returns.
What about partial withdrawals? view answer close
  • Partial withdrawals will be grossed up to include PIE tax 
  • For example, if an investor requests a $1,000 partial withdrawal, tax will be calculated on that figure and the amount withdrawn from the investor's account will be $1,000 plus applicable tax.
  • Partial withdrawals include regular withdrawals, lump sum withdrawals, fee deductions and distributions of income.
  • Should an investor change their PIR following any partial withdrawals, the new PIR will only apply to the income that was not taxed under the partial withdrawal.
What happens if an investor wishes to transfer or switch their investment between funds? view answer close
  • Depending on which funds are involved, there may be a tax consequence.  TOWER recommends investors seek specific tax advice before contemplating a transfer or a switch.
What if an investor wishes to change ownership of the investment under the PIE regime? view answer close
  • Investors transferring units to another party should seek tax advice on the method used.  The change of ownership will be deemed a withdrawal by the original investor.  PIE tax will be payable on the transfer and the balance received by the new owner will be after the PIE tax has been deducted.
Where is more information available? view answer close
Disclaimer: The information provided here is for general guidance only and is not financial or taxation advice.  Each investor's personal circumstances will be different.  Every effort has been made to ensure correctness, but TOWER takes no responsibility for any errors or omissions.  Always read the Investment Statement and take independent financial and taxation advice before making investment decisions.
 

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