What is a PIE fund?

A Portfolio Investment Entity (PIE) is a type of managed fund designed to deliver better tax outcomes for some New Zealand investors. Rather than being taxed at your personal income tax rate, PIE funds apply a Prescribed Investor Rate (PIR) — which is capped at 28%.

This could mean you pay less tax on investment income, particularly if you’re in a higher tax bracket. For example, investors on a 33% or 39% marginal tax rate could save by investing in a PIE, where the maximum tax rate is only 28%.

How do PIE funds work?

When you invest in a PIE fund, you must select a Prescribed Investor Rate (PIR) based on your taxable income over the previous two tax years. Your PIR determines how much tax you’ll pay on any investment income from a PIE fund.

Here’s how the PIR thresholds typically apply to individuals:

• 10.5% PIR: If your taxable income (excluding PIE income) was $15,600 or less, and your total income was $53,500 or less in either of the last two years.

• 17.5% PIR: If your taxable income (excluding PIE income) was $53,500 or less, and your total income was $78,100 or less in either of the last two years.

• 28% PIR: Applies to all others, including those on a higher personal income tax rate.

If your PIR is correct and up to date, the tax paid on your PIE income is final — meaning you don’t need to file a tax return on that income, and there’s no additional tax to pay.

Different PIRs apply to companies and other types of investors. For details, or to work out your PIR, go to ird.govt.nz or speak to your tax adviser.

Benefiting from Investing in a PIE

Example: If an individual earns over $53,500 per year they will typically have a PIR of 28%. If they were to invest in a PIE fund, the tax on their investment income will be calculated at this lower rate, instead of their personal income tax rate of at least 30%.

Now imagine the same income came from a non-PIE investment — they would be paying more tax and earning less after-tax income.

Disclaimer: First Mortgage Trust is not a financial or tax adviser. The potential benefits of investing in a PIE fund will depend on each investor's personal circumstances. This information is of a general nature and we strongly recommend that you talk to your financial or tax adviser to determine if investing in First Mortgage PIE Trust is right for you. Tax laws are subject to change. Article based on legislation in effect on date published.

It is the responsibility of the investor to tell FMT of your PIR when you invest or if your PIR changes. If you do not tell us, a default rate may be applied. If the rate applied to your PIE income is lower than your correct PIR, you will be required to pay any tax shortfall as part of year-end tax assessment. If the rate applied to your PIE income is higher than your correct PIE, any excess tax will be used to reduce your income tax liability you may have for the tax year with any balance remaining refunded by Inland Revenue.