What is a PIE (Portfolio Investment Entity)?
A Portfolio Investment Entity (PIE) is a NZ fund structure that taxes investment income at your Prescribed Investor Rate (PIR), currently 0%–28%, instead of your personal marginal rate. Many income and credit funds use PIEs to simplify tax and potentially reduce "tax drag" for eligible investors.
Contents
Potential Advantages
Taxed at PIR (0%–28%)
Investment income is taxed within the fund at your Prescribed Investor Rate, which may be lower than your marginal tax rate.
No RWT for PIE Income
Resident Withholding Tax is handled inside the fund, simplifying your tax obligations and cash flow management.
Consolidated Reporting
Receive consolidated year-end reporting from the fund manager, reducing your administrative burden.
Who Can Use a PIE?
New Zealand Tax Residents
Most NZ tax residents can invest in PIE funds and benefit from PIR taxation.
Non-Residents
Non-residents may invest via certain PIE classes, but tax treatment varies. Professional advice is recommended.
PIR Rates for 2025/26
- • 10.5% - Income ≤ $14,000 and taxable income ≤ $48,000
- • 17.5% - Income ≤ $48,000 and taxable income ≤ $70,000
- • 28% - All other investors
When a Fund is Not a PIE
Not all investment structures qualify as PIEs. Alternative structures include:
Limited Partnerships
Often apply look-through tax treatment where investors are taxed directly on their share of partnership income.
Company Structures
May apply standard company tax treatment with potential for imputation credits.
Unit Trusts
Typically flow income through to investors who are taxed at their marginal rates.
How PIE Tax Treatment Works
Tax Calculation
PIE funds calculate and pay tax on your investment income using your PIR, which you declare when investing. This happens automatically within the fund, so you don't need to calculate it yourself.
Example:
If you earn $10,000 in PIE income and your PIR is 17.5%, the fund withholds $1,750 in tax. You receive $8,250, with no additional tax obligations on that income.
Determining Your PIR
Your PIR is based on your taxable income from the previous two tax years. You must use the correct rate - using a rate that's too low can result in penalties.
- Review your income from the last two years before selecting your PIR
- Update your PIR if your income situation changes significantly
- Consult your accountant if you're unsure which rate to use
Distribution vs Accumulation
Some PIE funds distribute income (paying dividends/distributions to investors), while others accumulate income (reinvesting it within the fund). In both cases, tax is calculated and paid at your PIR rate.
Frequently Asked Questions
What is the difference between PIR and marginal tax rates?
PIR rates (10.5%, 17.5%, 28%) are often lower than marginal tax rates (10.5%, 17.5%, 30%, 33%, 39%). This can result in tax savings for higher-income earners investing in PIE funds.
Can I change my PIR during the year?
You can notify the fund manager to change your PIR, but it's important to ensure you're using the correct rate based on your income levels. Changes typically take effect for future periods.
Do I need to declare PIE income in my tax return?
PIE income is generally not included in your tax return as tax is paid within the fund. However, you should keep records and may need to declare for other purposes like student loan repayments or Working for Families.
Are PIE funds better than non-PIE investments?
It depends on your circumstances. PIE funds can offer tax efficiency and administrative simplicity. However, the right investment should be chosen based on your overall investment objectives, risk tolerance, and tax situation - not just the structure.
Can overseas investors use PIE funds?
Some PIE funds offer classes for non-resident investors, but tax treatment varies. Non-residents should seek professional tax advice before investing in PIE funds to understand the implications.
How do PIE losses work?
PIE tax losses cannot be offset against other income or carried forward to future years like regular tax losses. They can only be used to reduce future PIE income from the same fund.
Important Disclaimer
This is general information only and does not constitute tax advice. Please confirm your PIR and tax position with a qualified tax adviser before making investment decisions.