Taxation of PIE income

[Snoopy]

Thanks Snoopy. Just to clarify my thinking, I can't ignore any of the listed PIE dividends when calculating my PIR?

No, the opposite. For IR3 purposes and determining your PIR, you can ignore all income that you receive from a PIE entity (edit: Not correct for FY2021 onwards at least). Your PIR will be determined from your total income that is not from PIE sources, and will equate to your marginal tax rate, to a maximum PIR of 28%, capped at that level especially for PIE providers. After you have determined your PIR, you then inform your PIE incomes sources what your new PIR is. Some PIE investments ask you annually to verify that the PIR they have on record for you is still correct. If the PIR assigned to you is too low for your current situation, our Inland Revenue Department will send you a note informing you of that fact and ask you to resubmit your IR3 return with any PIE income with a PIR that is too low now included (this is what happened to me last year). That will allow any 'extra tax' that should have been paid at source, to be paid by you.

I was taken back to see the size of the gross BOT taxable dividend declared last week. This is when bonus shares are issued in order to utilise the accrued imputation credits. Immediately the shares are then cancelled. However, the gross dividend. declared but not paid out, can be sufficient to plunge one into the next tax bracket. This alters the PIR relating to the PIE fund income.

Does anyone else see this as a taxation anomaly?

Not familiar with your particular example. But when you get a bumper unexpected dividend or other form of taxable payout -not from a PIE entity-, then yes that can unexpectedly plunge you into a higher tax bracket. I wouldn't call the effect on your PIR an anomaly though. It just reflects that your PIR goes up when you go into the next tax bracket. That seems perfectly fair. Of course if that bumper helping of income is truly a 'one off' and your income in subsequent years is expected to dip back into your previous income tax band, be sure to inform your PIE income provider that your PIR rate has reduced again! Because the IRD will not refund you any extra tax paid from PIE sources if the PIR recorded for you at that PIE is too high!

SNOOPY

[Bev73]

Hi Snoopy, What I find strange is, that in creating new shares and then immediately cancelling them a dividend is declared to support the imputation credit.

The result being no change in the no. of shares held. However, no dividend is actually paid to the shareholders. Maybe I am being obtuse. I just like to see the logic in these things.

On a brighter note, BOT has risen over 50% since its introduction several years ago. So, I do not regret the purchase.

[Snoopy]

Hi Snoopy, What I find strange is, that in creating new shares and then immediately cancelling them a dividend is declared to support the imputation credit.

The result being no change in the no. of shares held. However, no dividend is actually paid to the shareholders. Maybe I am being obtuse. I just like to see the logic in these things.

On a brighter note, BOT has risen over 50% since its introduction several years ago. So, I do not regret the purchase.

OIC, I guess this is what 'Justakiwi' is on about as well? The whole combination of things, on this occasion, is all within the PIE structure. So there is nothing for BOT unitholders to do here.

You are quite right about the adjustment being strange though ($0.08639480 of pro-rata bonus shares being issued and then cancelled).

https://www.ishares.com/uk/professio...ssthrough=true

BOT (Smartshares Automatic and Robotics ETF) seems a locally listed way to invest in the the international Blackrock fund RBOT. The odd thing is that there is no evidence that RBOT invests in any New Zealand companies. That means no underlying NZ imputation credits are generated within RBOT. So with BOT being 100% composed of RBOT, how does BOT have any NZ imputation credits in the first place?

Looking back, I see there were a taxable bonus issues on 23rd November 2020 ($0.030939629) and on 22nd November 2019 ($0.03358043), previously. Just like the May 24th 2021 announcement, these were accompanied by share cancellations. All I can say is that I am baffled by all of this.

The only saving grace is that for NZ based unit holders, there is nothing to do, as all of these tax shenanigans are taken care of under the PIE structure.

SNOOPY

[Snoopy]

The IRD will not refund you any extra tax paid from PIE sources if the PIR recorded for you at that PIE is too high!

The above statement that I made in good faith is, from FY2021, no longer correct. if you go to page 42 in the IR3G for FY2021 you will see a PIE worksheet with this statement at the end of it

"Copy the amount in Box 5 to Box 36C of your return, if you are entitled to a refund of PIE tax enter a minus sign at the end of the cents box."

For the first time you can get a refund if you overpay your PIE tax.

SNOOPY