What are PIEs and PIRs
A PIE (Portfolio Investment Entity) is a type of investment entity that can offer you valuable tax advantages because it has special tax rules. PIEs came into existence on 1 October 2007.
A PIE can be a unit trust. A unit trust allows an investor to ‘pool’ their money together with other investors.
Tax is minimised so returns are maximised3
Individuals pay tax at rates of 0%, 10.5%, 17.5% or 28%, depending on their circumstances. A 0% rate is also available for some non-individual investors. Tax on PIE income is capped at a maximum rate of 28% for most investors.
Because of the tax cap, NZ resident investors with a marginal tax rate of 30% or 33% may pay less tax on income earned through a PIE. The same may also be true for trusts that pay tax on trustee income at 33%.
If you are on a lower tax rate you could also maximise your returns by investing in a PIE. This is because of the way that PIE income is taxed.
Here are some examples of how a PIE investment benefits investors with different goals.
- Parking your funds for the short term
Rachel is on a top tax rate of 33%. She wants to invest her house deposit while she goes away for six months.
- Saving for a long-term goal
Brian is on a tax rate of 30%. He’s trying to maximise his savings so he can buy an expensive car one day.
- Boosting retirement income
Caitlin’s retired and receives superannuation. But extra income earned from her investments means her tax rate may be 30%.
- Helping with living expenses
Luke’s got a part time job while he’s at uni and is on a lower tax rate. He has inherited some money which he plans to invest so he can use the returns it generates to help him out with his living expenses.
Working out your PIE tax rate
The tax rate that applies to PIE investments is known as your PIR (Prescribed Investor Rate). If you don’t notify a PIR or don’t supply your IRD number, your PIE income will automatically be taxed at a default rate of 28%.
If you are joint New Zealand resident individual investors with different PIRs, the notifed PIR on your joint account will be the higher of your two individual PIRs.
Your PIR is calculated based on your income over the last two tax years. This is different to tax rates for other investments, which are based on your expected income over the next tax year.
If you have trouble working out your PIR you should speak to a professional tax advisor about which rate is right for you.
Work out your PIR
Keeping your PIR up to date
It’s important to identify the correct PIR when you apply for a PIE investment. Each year the manager of your PIE fund will ask you to confirm your notified PIR.
If your PIR changes at any time, you need to notify the manager of your PIE fund immediately because:
- If you notify a PIR that is lower than your correct PIR, you will be liable to pay tax on your income at your marginal tax rate and to file a tax return
- If you notify a PIR that is higher than the applicable rate, you will not be able to claim back the excess tax paid
PIE income and tax returns
For most individuals, the tax paid by a PIE on your behalf is a ‘final’ tax. This means you don’t have to include the PIE income in your tax return.
PIE products you may be interested in
- Term PIE1,3
Maximise savings you don’t need right now with this tax-smart, fixed term investment
- Cash PIE2,3
The tax-smart investment that’s similar to an on call account
- AXA KiwiSaver Scheme4
Be a KiwiSaver today for a better tomorrow
We recommend speaking to a financial adviser before deciding to invest.
Small print
- BNZ Term PIE (Fund) is offered and managed by BNZ Investment Services Limited - a wholly owned subsidiary of Bank of New Zealand (BNZ). A current BNZ Term PIE Investment Statement PDF 140KB can be obtained free of charge from any BNZ store. BNZ is a promoter of the Fund. An investment in the Fund does not represent a deposit or other liability of the BNZ, National Australia Bank Limited or any member of the BNZ group of companies. An investment in the Fund is subject to investment risk, including possible delays in repayment and loss of income and principal invested. The value of investments and the income from them may go down as well as up. Neither BNZ, National Australia Bank Limited nor any other person guarantees (either partially or fully) the capital value or performance of the investment.
- BNZ Cash PIE (Fund) is offered and managed by BNZ Investment Services Limited - a wholly owned subsidiary of Bank of New Zealand (BNZ). A current BNZ Cash PIE Investment Statement PDF 301KB can be obtained free of charge from any BNZ store. BNZ is a promoter of the Fund. An investment in the Fund does not represent a deposit or other liability of the BNZ, National Australia Bank Limited or any member of the BNZ group of companies. An investment in the Fund is subject to investment risk, including possible delays in repayment and loss of income and principal invested. The value of investments and the income from them may go down as well as up. Neither BNZ, National Australia Bank Limited nor any other person guarantees (either partially or fully) the capital value or performance of the investment
- PIE funds provide some individual and trustee investors with a significant benefit over holding assets (or investments) directly. This is because PIE funds will pay tax on behalf of such investors at their Prescribed Investor Rate (PIR) with the highest or default PIR capped at 28%. Provided you have notified your correct PIR, no further tax will be payable. This means that individual investors with a higher marginal tax rate than 28% and a PIR of 28% will save tax. Certain trusts with a 33% tax rate may elect a PIR of 17.5% or 28% (certain testamentary trusts can elect a PIR of 10.5%) and therefore may save tax.
Non-individual investors with a 0% PIR and trusts which have notified a PIR of less than 28% will be responsible for paying tax on the PIE income attributed to them. Companies will pay tax on PIE income at 30% until the beginning of their 2012 income year.
- The AXA KiwiSaver Scheme is managed and promoted by AXA Wealth Management Limited trading as “AXA New Zealand". New Zealand Permanent Trustees Limited is the trustee and issuer of the AXA KiwiSaver Scheme. Bank of New Zealand (BNZ) distributes the AXA KiwiSaver Scheme (Scheme) to its retail customers and receives fees from AXA in respect of retail customers who become members of the Scheme. These fees are payable by AXA. BNZ is not a promoter of the Scheme. Investments in the Scheme are not guaranteed by any person. Further details can be found in the Investment Statement for the AXA KiwiSaver Scheme PDF 1MB, also available free of charge at any BNZ store. We strongly recommend that you seek advice from your BNZ Investment Advisers. BNZ Authorised Financial Advisers' disclosure statements are available on request and free of charge.
BNZ Authorised Financial Advisers' disclosure statements are available on request and free of charge.
Parking your money for the short-term
Rachel has saved a $50,000 deposit for a house, but hasn’t found the right one yet. She’s taking an extended holiday and won’t be looking at houses for a while. So she’s decided to invest her deposit for six months.
- Rachel earns $100,000 of taxable income from her job. She pays PAYE on this income and her marginal tax rate is 33%. She doesn’t have any other income.
- Rachel knows that she can lock her savings, of $50,000, at BNZ in a 180-day Term Deposit or Term PIE at 4.80% p.a. The returns will be paid at maturity.
- Rachel’s worked out that she’d pay 33% Resident Withholding Tax (RWT) on her Term Deposit returns. But she’ll only pay 28% tax on her Term PIE returns because this is the top tax rate (Prescribed Investor Rate or PIR) for a PIE investment.
Rachel compares the after-tax returns for each investment. Here are her calculations:
| $50,000 investment for 180 days |
Term Deposit
(Taxed at 33%) |
Term PIE*
(Taxed at 28%) |
| 4.80% p.a. return (before tax) over whole term |
$ 1,183.56
|
$ 1,183.56
|
| Tax to be deducted from Rachel’s returns |
-$ 390.58
|
-$ 331.40
|
| Total return (after tax) |
$ 792.99
|
$ 852.16
|
Rachel would receive $59.18 more in after-tax returns by investing in the BNZ Term PIE*.
Small print
* These calculations do not include the impact of the PIE tax that will be deducted from investors’ accounts on or around 31 March each year.
These case studies are for illustration purposes only and should not be relied upon or used as a substitute for professional advice. You should obtain professional advice for your particular circumstances.
Rates are subject to change. Account opening criteria apply. Details, Standard Terms and Conditions, disclosure statement and Investment Statement for Term Investments may also be obtained free at any BNZ store.
BNZ Term PIE (Fund) is offered and managed by BNZ Investment Services Limited - a wholly owned subsidiary of Bank of New Zealand (BNZ). A current Investment Statement can be obtained free of charge from any BNZ store. BNZ is a promoter of the Fund. An investment in the Fund does not represent a deposit or other liability of the BNZ, National Australia Bank Limited or any member of the BNZ group of companies. An investment in the Fund is subject to investment risk, including possible delays in repayment and loss of income and principal invested. The value of investments and the income from them may go down as well as up. Neither BNZ, National Australia Bank Limited nor any other person guarantees (either partially or fully) the capital value or performance of the investment.
PIE funds provide some individual and trustee investors with a significant benefit over holding assets (or investments) directly. This is because PIE funds will pay tax on behalf of such investors at their Prescribed Investor Rate (PIR) with the highest or default PIR capped at 28%. Provided you have notified your correct PIR, no further tax will be payable. This means that individual investors with a higher marginal tax rate than 28% and a PIR of 28% will save tax. Certain trusts with a 33% tax rate may elect a PIR of 17.5% or 28% (certain testamentary trusts can elect a PIR of 10.5%) and therefore may save tax.
BNZ Authorised Financial Advisers' disclosure statements are available on request and free of charge.
Saving for a long-term goal
Brian is really interested in motor racing and wants to buy a V8 supercar one day. He realises that his goal will only be achieved if he can resist the temptation to spend his savings on other things. So he’s decided to lock his current savings of $60,000 away for two years.
- Brian earns $55,000 of taxable income from his job. He pays PAYE on this income and his marginal tax rate is 30%. He doesn’t have any other income.
- Brian knows that he can lock in his savings at a before-tax rate of 5.20% p.a. for two years if he invests in a Term Deposit or a Term PIE at BNZ.
- Brian’s worked out that he’d pay 30% Resident Withholding Tax (RWT) on his Term Deposit returns. But he’ll only pay 28% tax on his Term PIE returns because this is the top tax rate (Prescribed Investor Rate or PIR) for a PIE investment.
- Because Brian’s looking at a longer-term investments, he can choose to have his returns reinvested (compounded) every three months so he can maximise his returns.
Brian compares the two investments. Here are his calculations:
| $60,000 investment for two years |
Term Deposit
(Taxed at 30%) |
Term PIE*
(Taxed at 28%) |
| 5.20% p.a. return (before tax) over whole term |
$ 6,462.59
|
$ 6,513.42
|
| Tax to be deducted from Brian’s returns |
- $ 1,938.78
|
- $ 1,823.76
|
| Total return (after tax) |
$ 4,523.81
|
$ 4,689.66
|
Brian would receive $165.85 more in after-tax returns by investing in Term PIE for two reasons:
- He would benefit from the lower tax rate that will be applied to his PIE investment
- He only gets taxed on his Term PIE investment on March 31 each year and at maturity. This means his returns are reinvested each quarter without tax being deducted. With a Term Deposit, he’d pay tax on his returns each quarter before they are reinvested.
Small print
* These calculations do not include the impact of the PIE tax that will be deducted from investors’ accounts on or around 31 March each year.
These case studies are for illustration purposes only and should not be relied upon or used as a substitute for professional advice. You should obtain professional advice for your particular circumstances.
Rates are subject to change. Account opening criteria apply. Details, Standard Terms and Conditions, disclosure statement and Investment Statement for Term Investments may also be obtained free at any BNZ store.
BNZ Term PIE (Fund) is offered and managed by BNZ Investment Services Limited - a wholly owned subsidiary of Bank of New Zealand (BNZ). A current Investment Statement can be obtained free of charge from any BNZ store. BNZ is a promoter of the Fund. An investment in the Fund does not represent a deposit or other liability of the BNZ, National Australia Bank Limited or any member of the BNZ group of companies. An investment in the Fund is subject to investment risk, including possible delays in repayment and loss of income and principal invested. The value of investments and the income from them may go down as well as up. Neither BNZ, National Australia Bank Limited nor any other person guarantees (either partially or fully) the capital value or performance of the investment.
PIE funds provide some individual and trustee investors with a significant benefit over holding assets (or investments) directly. This is because PIE funds will pay tax on behalf of such investors at their Prescribed Investor Rate (PIR) with the highest or default PIR capped at 28%. Provided you have notified your correct PIR, no further tax will be payable. This means that individual investors with a higher marginal tax rate than 28% and a PIR of 28% will save tax. Certain trusts with a 33% tax rate may elect a PIR of 17.5% or 28% (certain testamentary trusts can elect a PIR of 10.5%) and therefore may save tax.
BNZ Authorised Financial Advisers' disclosure statements are available on request and free of charge.
Boosting retirement income
Caitlin retired recently and receives $19,425 a year in national superannuation. Two years ago Caitlin was working full time and earned $75,000 in taxable income, but this dropped to $46,000 (including superannuation) last year when she retired. So Caitlin has just sold one of her rental properties and wants to invest the $400,000 sale proceeds to boost her retirement income.
Caitlin wants to know how much income she’ll have each month. So she has decided to lock in her $400,000 for three years and have her returns paid monthly. She has negotiated a special rate of 5.80% p.a. annually.
- This year, she’s expecting her taxable income (excluding any returns on the $400,000) to remain at $46,000 – a combination of her superannuation and returns from her rental properties.
- Caitlin’s worked out that her gross annual returns before tax from her $400,000 investment would be $23,200. This would bring her taxable income to a total of $69,200 this year ($23,200 + $46,000).
- Caitlin has worked out that if she invests in a Term Deposit she’ll pay Resident Withholding Tax (RWT) on her returns at 30%
- But if she puts her money in Term PIE, her tax rate (Prescribed Investor Rate or PIR) will only be 17.5%. This is because her total taxable income of $46,000 last year was below $48,000 with no PIE income.
- Caitlin will need to review her PIR each year to ensure that she remains eligible for the 17.5% rate.
Here’s how Term Deposit stacks up next to Term PIE for Caitlin:
| $400,000 investment for three years |
Term Deposit
(Taxed at 30%) |
Term PIE*
(Taxed at 17.5%) |
| 5.80% p.a. return (before tax) over whole term |
$ 69,600.00
|
$ 69,600.00
|
| Tax to be deducted from Caitlin’s returns |
-$ 20,880.00
|
-$ 12,180.00
|
| Total return (after tax) |
$ 48,720.00
|
$ 57,420.00
|
Caitlin would receive $8,700.00 more in after-tax returns over the life of her three-year investment by investing in Term PIE*.
The additional after-tax return would be spread throughout the three-year period. Overall it means she has an extra $24.67 per month to live off.
Caitlin will need to review her PIR each year to ensure that she remains eligible for the 17.5% rate.
Small print
* These calculations do not include the impact of the PIE tax that will be deducted from investors’ accounts on or around 31 March each year.
These case studies are for illustration purposes only and should not be relied upon or used as a substitute for professional advice. You should obtain professional advice for your particular circumstances.
Rates are subject to change. Account opening criteria apply. Details, Standard Terms and Conditions, disclosure statement and Investment Statement for Term Investments may also be obtained free at any BNZ store.
BNZ Term PIE (Fund) is offered and managed by BNZ Investment Services Limited - a wholly owned subsidiary of Bank of New Zealand (BNZ). A current Investment Statement can be obtained free of charge from any BNZ store. BNZ is a promoter of the Fund. An investment in the Fund does not represent a deposit or other liability of the BNZ, National Australia Bank Limited or any member of the BNZ group of companies. An investment in the Fund is subject to investment risk, including possible delays in repayment and loss of income and principal invested. The value of investments and the income from them may go down as well as up. Neither BNZ, National Australia Bank Limited nor any other person guarantees (either partially or fully) the capital value or performance of the investment.
PIE funds provide some individual and trustee investors with a significant benefit over holding assets (or investments) directly. This is because PIE funds will pay tax on behalf of such investors at their Prescribed Investor Rate (PIR) with the highest or default PIR capped at 28%. Provided you have notified your correct PIR, no further tax will be payable. This means that individual investors with a higher marginal tax rate than 28% and a PIR of 28% will save tax. Certain trusts with a 33% tax rate may elect a PIR of 17.5% or 28% (certain testamentary trusts can elect a PIR of 10.5%) and therefore may save tax.
BNZ Authorised Financial Advisers' disclosure statements are available on request and free of charge.
Helping with university living expenses
Luke’s off to university soon. He has recently inherited $200,000. Luke knows if he invests this amount, he can use the returns to support himself through uni and supplement his part-time job income where he earned $9000 last year. When he leaves uni in three years, he wants to use the principal (i.e. his original investment amount) as a deposit on his first house.
Being a bright lad, Luke has decided to invest the money one year at a time and have the returns paid into his bank account each month. He doesn’t want to lock money in for longer than a year because he knows that interest rates are likely to rise. Luke has been offered a rate of 4.50% p.a. for either a one-year Term Deposit or Term PIE.
- Luke expects his part-time wages to remain around $9000 this year. So if he invests the $200,000 in a Term Deposit, he’s worked out he’ll pay Resident Withholding Tax (RWT) at 17.5%. This is because his total taxable income next year will be $18,000.
- If he invests in a Term PIE, he will be only be taxed at the lowest Prescribed Investor Rate (or PIR) of 10.5%, based on his previous year’s taxable income of $9000.
Luke decided to compare which investment would give him the highest after-tax return. Here are his calculations:
| $200,000 investment for one year |
Term Deposit
(Taxed at 17.5%) |
Term PIE*
(Taxed at 10.5%) |
| 4.50% p.a. return (before tax) over the whole term |
$ 9,000.00
|
$ 9,000.00
|
| Tax to be deducted from Caitlin’s returns |
-$ 1,575.00
|
-$ 945.00
|
| Total return (after tax) |
$ 7,425.00
|
$ 8,055.00
|
Luke would receive $630.00 more in after-tax returns by investing in Term PIE over one year*.
This after-tax return would be spread throughout the year, which means he’ll have an extra $52.50 a month to live off. For Luke, that’s an extra few cups of coffee each week to keep him awake while he’s studying!
Luke will need to review his PIR each year to ensure that he is still eligible for the 10.5% rate.
Small print
* These calculations do not include the impact of the PIE tax that will be deducted from investors’ accounts on or around 31 March each year.
These case studies are for illustration purposes only and should not be relied upon or used as a substitute for professional advice. You should obtain professional advice for your particular circumstances.
Rates are subject to change. Account opening criteria apply. Details, Standard Terms and Conditions, disclosure statement and Investment Statement for Term Investments may also be obtained free at any BNZ store.
BNZ Term PIE (Fund) is offered and managed by BNZ Investment Services Limited - a wholly owned subsidiary of Bank of New Zealand (BNZ). A current Investment Statement can be obtained free of charge from any BNZ store. BNZ is a promoter of the Fund. An investment in the Fund does not represent a deposit or other liability of the BNZ, National Australia Bank Limited or any member of the BNZ group of companies. An investment in the Fund is subject to investment risk, including possible delays in repayment and loss of income and principal invested. The value of investments and the income from them may go down as well as up. Neither BNZ, National Australia Bank Limited nor any other person guarantees (either partially or fully) the capital value or performance of the investment.
PIE funds provide some individual and trustee investors with a significant benefit over holding assets (or investments) directly. This is because PIE funds will pay tax on behalf of such investors at their Prescribed Investor Rate (PIR) with the highest or default PIR capped at 28%. Provided you have notified your correct PIR, no further tax will be payable. This means that individual investors with a higher marginal tax rate than 28% and a PIR of 28% will save tax. Certain trusts with a 33% tax rate may elect a PIR of 17.5% or 28% (certain testamentary trusts can elect a PIR of 10.5%) and therefore may save tax.
BNZ Authorised Financial Advisers' disclosure statements are available on request and free of charge.
How to work out your PIR
