Explaining how portfolio investment entities (PIEs) benefit different investors
A portfolio investment entity (PIE) investment could benefit several different types of investors. The examples below show how a PIE could:
- Provide a temporary tax advantage to someone who has recently returned to work
- Pay a lower tax rate on a ‘rainy day’ savings fund
- Provide a tax advantage to someone who's income tax bracket has changed
- Pay a lower tax rate on a KiwiSaver scheme.
Case study 1 – A temporary tax advantage
Kate recently returned to work, following three years at home looking after her kids. She's landed a job with a salary of $75,000 a year. This means she has an income tax rate of 33%. This will also be the withholding tax rate that applies to any interest she earns on her savings.
If she puts her savings into a PIE investment such as the BNZ Term PIE*, she could be better off. That’s because this fund takes advantage of the PIE tax rules. Her prescribed investor rate (PIR) is based on her taxable income in either of the last two income years.
Because she didn’t earn any money during this time, she’s able to elect a PIR of 10.5%. So instead of paying 33% tax on returns on her savings, she could pay only 10.5%.
This temporary tax advantage will last for two years. Even after this she’ll still be better off. That’s because PIE tax is capped at the rate of 28%, which is less than 33%.
Case study 2 – A ‘rainy day’ fund
John has a rainy day fund, which is currently $20,000. As John earns over $70,000, he pays income tax at 33%.
Because his rainy day fund is in a regular savings account, John pays 33% tax on any interest he receives from this $20,000. However, because the BNZ Cash PIE* takes advantage of the PIE rules and gives him ready access to his money, he could put his $20,000 into this fund and benefit from having the tax on his returns capped at 28%, instead of paying tax at 33%.
Case study 3 – Income tax bracket has changed because of a pay rise
Emma has recently been given a pay rise. She used to earn $45,000 a year, but now earns $50,000. This means she has moved from the 17.5% income tax bracket to the 30% income tax bracket. This will also be the tax rate that applies to any interest she earns on any savings she has.
Because her PIR is based on her taxable income in either of the last two income years, she qualifies for a PIR of 17.5% for another two years. So instead of paying 30% tax on returns on her savings, she could pay 17.5% tax if she invested in a PIE.
Even after this she’ll still be better off. That’s because PIE tax is capped at the rate of 28%, which is better than 30%.
The same could apply to anyone who moves from the 10.5% income tax bracket to the 17.5% income tax bracket (by crossing the $14,000 a year taxable income threshold).
Case study 4 – Paying in to a KiwiSaver scheme
Nadia is a member of the BNZ KiwiSaver Scheme.^ She earns a yearly salary of $75,000 and currently pays income tax at 33%.
Like any other investment, returns from a KiwiSaver Scheme account are taxable. Because the BNZ KiwiSaver Scheme is a portfolio investment entity, it can take advantage of the PIE tax rules. This means Nadia will pay tax on any returns from the investments in her BNZ KiwiSaver Scheme account using her prescribed investor rate, rather than her income tax rate. So instead of paying tax at 33%, she will pay tax at a rate of 28%, since PIE tax is capped at 28%.
Important: The information on this page is general in nature and does not constitute specific tax advice to any person. We recommend you obtain independent tax advice for your own circumstances. Neither BNZ Investment Services Limited nor any other person accepts any liability for the use of, or reliance on, this information.