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
McKenzie told her MRP to use a PIR of 28% for the tax year ending 31 March 2023.
McKenzie’s MRP has returned income of $1,345 and tax deductions of $376.60 for the year.
The correct PIR determined by Inland Revenue for the 2023 tax year is 17.5%.
Using the correct tax rate of 17.5%, Inland Revenue calculates that McKenzie should have had $235.38 deducted, not $376.60. This results in a PIE credit of $141.22.
However, McKenzie’s employer has not taken enough tax from her pay, meaning McKenzie has an $70.23 income tax debt.
The PIE tax credit of $141.22 is offset against the income tax bill, but there is still a credit of $70.99, which is refunded to McKenzie.
Cherise told her MRP to use a PIR of 10.5% for the tax year ending 31 March 2023.
Cherise’s MRP returned PIE income of $575 and had tax deductions of $60.38 for the year.
Inland Revenue determined that the correct PIR for Cherise for the 2023 tax year was 28%.
Inland Revenue calculates that the correct tax using the 28% PIR is $161. This resulted in a PIE debt of $100.62.
Cherise has an income tax bill of $2,300 from her self-employed income. The PIE debt is added to the final calculation and Cherise's total bill is $2,400.62.
Gabriela is a member of the Smartfund KiwiSaver scheme, which is an MRP. Gabriela told her MRP to use a PIR of 28% for the tax year ending 31 March 2023.
Gabriela thought if she paid more tax than she needed to, she would get a refund at the end of the year. Gabriela's correct PIR was 17.5%.
In the 2023 tax year Gabriela's Kiwisaver investment made a loss of $3,120.00. Smartfund gave Gabriela a tax credit of $873.60 (28% of $3,120.00).
When Gabriela gets her 2023 income tax assessment from Inland Revenue it shows her PIE loss and that she has a PIE debt of $327.60.
The $327.60 of debt is added to her tax on taxable income.
When an MRP makes a loss, the PIE exchanges the loss for a refund of tax paid that they may then credit back to the investor by refund or by providing additional units in the MRP. The refund is calculated by multiplying the loss by the PIR that was chosen by Gabriela. Rather than paying the refund to Gabriela, the PIE gave Gabriela extra units to the value of $873.60.
However, as her PIR should have been 17.5%, Gabriela received more units than she was entitled to. Inland Revenue's refund to the PIE should have only been $546.00 based on a PIR 17.5%.
This means Gabriela has to pay $327.60 back to Inland Revenue ($873.60 - $546.00 = $327.60).