Taxation of PIE income

[Bev73]

My PIR rate is 17.5%. Previously, a sizeable part of my portfolio was in growth companies that paid little, or no, dividends, Thus, the dividends were low enough to keep my basic income well below $49,000 enabling me to maintain a 17.5% PIR rate.


However, now a portion of my investment is in NZX listed PIE companies, as well as non PIE cos. . Another portion is still in two PIE Funds.


The IRD web site and the dividend advices inform me that I have the option of declaring, or, not declaring the PIE income.
This implies that I can "cherry pick" which PIE dividends I include on my IR3. I assume, however, that is not true once the $70,000 threshold is breached. I am not there yet, so, the 2021 IR3 was fine.


There may be some enlightening articles on the net, but I have not, as yet, located them.

[fungus pudding]

My PIR rate is 17.5%. Previously, a sizeable part of my portfolio was in growth companies that paid little, or no, dividends, Thus, the dividends were low enough to keep my basic income well below $49,000 enabling me to maintain a 17.5% PIR rate.


However, now a portion of my investment is in NZX listed PIE companies, as well as non PIE cos. . Another portion is still in two PIE Funds.


The IRD web site and the dividend advices inform me that I have the option of declaring, or, not declaring the PIE income.
This implies that I can "cherry pick" which PIE dividends I include on my IR3. I assume, however, that is not true once the $70,000 threshold is breached. I am not there yet, so, the 2021 IR3 was fine.


There may be some enlightening articles on the net, but I have not, as yet, located them.

Something I have not been able to locate is a list of NZSX companies that are PIES. And those I know of that are PIES don't bother indicating it on their web-sites. Most unhelpful for those like me who know next to nothing about the share market.

[Snoopy]

My PIR rate is 17.5%. Previously, a sizeable part of my portfolio was in growth companies that paid little, or no, dividends, Thus, the dividends were low enough to keep my basic income well below $49,000 enabling me to maintain a 17.5% PIR rate.


However, now a portion of my investment is in NZX listed PIE companies, as well as non PIE cos. . Another portion is still in two PIE Funds.


The IRD web site and the dividend advices inform me that I have the option of declaring, or, not declaring the PIE income.
This implies that I can "cherry pick" which PIE dividends I include on my IR3. I assume, however, that is not true once the $70,000 threshold is breached. I am not there yet, so, the 2021 IR3 was fine.


You assume wrongly. Providing your PIR rate is correct, there is no need to declare any of your PIE income in your IR3.

If your PIR rate is 17.5%, but your income gets into the higher than $49k tax bracket, then you may be required to declare your PIE income to correct the amount of tax that should have been deducted at source. But if you inform all the institutions which hold your PIE income generating income units of your correct PIR rate, then there is no need to declare any PIE income in your tax return, irrespective of how high your income gets.

It remains optional to declare your PIE income in your IR3 at any time. But this is done for a special situation where some taxpayers can make use of PIE tax credits to offset tax payable from other income sources. For most people it does not make sense to declare their PIE income in their IR3.

SNOOPY

[Bev73]

You assume wrongly. Providing your PIR rate is correct, there is no need to declare any of your PIE income in your IR3.

If your PIR rate is 17.5%, but your income gets into the higher than $49k tax bracket, then you may be required to declare your PIE income to correct the amount of tax that should have been deducted at source. But if you inform all the institutions which hold your PIE income generating income units of your correct PIR rate, then there is no need to declare any PIE income in your tax return, irrespective of how high your income gets.

It remains optional to declare your PIE income in your IR3 at any time. But this is done for a special situation where some taxpayers can make use of PIE tax credits to offset tax payable from other income sources. For most people it does not make sense to declare their PIE income in their IR3.

SNOOPY

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

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?

[justakiwi]

My understanding is that these “bonus” dividend payments are simply a way for them to distribute excess imputation credits. I don’t believe the dividend itself (which is a cancelled dividend) is classed as income, but you can claim the imputation credits on your tax return if you are on a lower PIR.

Someone will correct me if I’m wrong, but that’s how I read it.




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?

[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

[Snoopy]

My understanding is that these “bonus” dividend payments are simply a way for them to distribute excess imputation credits. I don’t believe the dividend itself (which is a cancelled dividend) is classed as income, but you can claim the imputation credits on your tax return if you are on a lower PIR.

Someone will correct me if I’m wrong, but that’s how I read it.


There is such a thing as a 'taxable bonus share issue', which can be a way to distribute excess imputation credits to shareholders. As the name implies, this is fully taxable, even if no cash payout comes into your bank account as a result of such bonus shares being issued.

I do not understand your reference to a 'dividend' being a 'cancelled dividend' Justakiwi. Can you please expand on the situation you are talking about?

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.:mellow:

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

[Bev73]

As described in the NZX announcement

"CORPACT: BOT: BOT Taxable Bonus Issue Notice

Monday, 24 May 2021

Smartshares Limited is pleased to announce for the period ending 31 May 2021:

o Taxable bonus issue and unit cancellation amount.

You must be a registered security holder of the ETF on Record Date to be
eligible for this distribution and taxable bonus issue and unit cancellation
amount."

[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.:mellow:

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/professional/en/products/284219/ishares-automation-robotics-ucits-etf?switchLocale=y&siteEntryPassthrough=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

[777]

A good table is included in this publication.

https://www.ird.govt.nz/-/media/project/ir/home/documents/forms-and-guides/ir800---ir899/ir855/ir855-2020.pdf?modified=20210201011148

You do have to include PIE income with taxable income to calculate your PIR to ensure you fall below the applicable levels, 48000 and 70000.

[777]

Duplicate...

[Snoopy]

A good table is included in this publication.

https://www.ird.govt.nz/-/media/project/ir/home/documents/forms-and-guides/ir800---ir899/ir855/ir855-2020.pdf?modified=20210201011148

You do have to include PIE income with taxable income to calculate your PIR to ensure you fall below the applicable levels, 48000 and 70000.

Thanks for that reference 777. It answers most questions if read carefully. However, I think the last line conclusion that you have made to your post is wrong. What your reference says is:

"What is a prescribed investor rate (PIR)? The PIR for resident individuals is a prescribed rate based on your taxable income in the last two income years, eg, income from salary, wages and any additional sources of income you would include in your income tax return (1). PIE attributed income (2) will also be taken into account."

(1) Generally you would not include PIE income in your income tax return, so it doesn't count towards determining your PIR.

(2) If you declare PIE income in your tax return, that income is attributed to yourself, and must be included in any total income calculation to work out your indicative tax rate. However, if you just bank the PIE income into your bank account without putting it in your tax return, that income is not attributed to any particular person. All the tax calculations are made within the PIE fund, without reference to any particular person. I would argue that such income is not attributed to a person and so should not be included in any personal income calculation to determine your PIR, and hence IR3 tax obligations.

SNOOPY

[777]

Fact is you do not include PIE income in your tax return (IR3) unless there is an advantage to use the imputation credits. However to calculate your PIR you need to consider both taxable income and PIE income.

eg if your taxable income is $10,000 (ie is under $14,000) and you have $37,999 PIE income then your PIE is 10.5%. But if your taxable income is $10,000 and PIE income is $38,001 then your PIR is 17.5%. The table in the guide reflects that.

[herbert240]

This PIE income is very tricky. I do my 90 year old mothers tax return. She has a my IR I set up with IRD. She has a PIE investment with Fisher Funds and has a PIR of 17.5%. I notice the IRD includes PIE income in her my IR.

As an aside I have been claiming expenses (monitoring and admin) for years as advised by her Fishers investment adviser. However this year she got a message from IRD saying the expenses were "denied" quoting a section of the Income Tax Act. I have been scrambling around trying to get a definitive answer from Fishers and others who should know. At this stage it looks as though the IRD may be right. Am not sure if they will go back and reassess past years tax returns! Does anyone on the forum have any experience/knowledge of this issue? Sorry I don't mean to hijack this thread.

[herbert240]

This PIE income is very tricky. I do my 90 year old mothers tax return. She has a my IR I set up with IRD. She has a PIE investment with Fisher Funds and has a PIR of 17.5%. I notice the IRD includes PIE income in her my IR.

As an aside I have been claiming expenses (monitoring and admin) for years as advised by her Fishers investment adviser. However this year she got a message from IRD saying the expenses were "denied" quoting a section of the Income Tax Act. I have been scrambling around trying to get a definitive answer from Fishers and others who should know. At this stage it looks as though the IRD may be right. Am not sure if they will go back and reassess past years tax returns! Does anyone on the forum have any experience/knowledge of this issue? Sorry I don't mean to hijack this thread.

[777]

My guess is that the expense was due to PIE income and you were deducting it from taxable income.

[Snoopy]

The IRD web site and the dividend advices inform me that I have the option of declaring, or, not declaring the PIE income.
This implies that I can "cherry pick" which PIE dividends I include on my IR3. I assume, however, that is not true once the $70,000 threshold is breached. I am not there yet, so, the 2021 IR3 was fine.

There may be some enlightening articles on the net, but I have not, as yet, located them.


I may have put you wrong here Bev. Where on the IRD website does it state that you have the option of declaring or not declaring your PIE income? There are apparently new tax regulations from the beginning of the FY2021 tax year.

https://www.ird.govt.nz/updates/news-folder/individual-income-tax-return-ir3s-for-31-march-2021

"This is a reminder that from the 2021 income tax year, portfolio investment entity (PIE) income must be included in all individual income tax returns."

That reference is dated 3rd May 2021, so this change in policy is very recent. If all PIE income must now be included in your IR3, the discussion on which classes of income should be included when calculating your PIR number becomes moot, because all PIE income now must be included in your tax return!

Looking at my own IR3 for FY2021, which I have yet to complete, I see there is a new question Q36, requesting information on my PIE income. So you do have to declare it, although it looks like it lies outside of the rest of your income tax calculations.

SNOOPY

[Snoopy]

Fact is you do not include PIE income in your tax return (IR3) unless there is an advantage to use the imputation credits. However to calculate your PIR you need to consider both taxable income and PIE income.

eg if your taxable income is $10,000 (ie is under $14,000) and you have $37,999 PIE income then your PIE is 10.5%. But if your taxable income is $10,000 and PIE income is $38,001 then your PIR is 17.5%. The table in the guide reflects that.

For those wondering about calculating their correct PIR rate, I suggest they look here

https://www.ird.govt.nz/pir

It does look like 777 is correct for FY2021 at least.

As for previous years, I think the documentation in IR855-2020 is ambiguous, given the different views on this topic expressed on this thread. Yes I can see the table says include 'your' taxable income and 'your' PIE income. But up until the start of FY2021 PIE income was not regarded as 'your' income for income tax purposes, unless you specifically chose to include it. So I would argue that undeclared PIE income is not 'your' income because it is not recognised as such by the IRD and so should not be included in any PIR calculation. To support my view, I note the instructions in IR855-2020:

"income from salary, wages and any additional sources of income you would include in your income tax return."

Now I ask the counter factual question, what sources of income are not included in your tax return? The only form of income I can think of that it is legal not to include in your tax return (prior to FY2021 at least) was PIE income. So I take this quote as a specific instruction NOT to include it UNLESS you choose to declare it, which is where the next sentence comes in.

"PIE attributed income will also be taken into account."

That means that if you choose to attribute this PIE income to yourself, it must be included. But if you don't (i.e. you leave it out of your tax return) the PIE income remains excluded for PIR calculation purposes. If anyone can see a flaw in my interpretation of what has been written in IR855-2020 please enlighten me. Until then I shall regard my interpretation of how to calculate PIR, historically, as correct.

SNOOPY

[herbert240]

My guess is that the expense was due to PIE income and you were deducting it from taxable income.

I am still a bit confused 777. Adviser from Fishers says "The PIE system will take the taxation at your prescribed PIR rate and deduct from the figure the amount of fees that have been paid" I guess this means I have been "double dipping" and should not have claimed expenses resulting in refunds?

[777]

I am still a bit confused 777. Adviser from Fishers says "The PIE system will take the taxation at your prescribed PIR rate and deduct from the figure the amount of fees that have been paid" I guess this means I have been "double dipping" and should not have claimed expenses resulting in refunds?

A reasonable summation I think. I am surprised that Fishers give tax advice though.

[777]

Snoopy I am sure you are wrong in interpretation and this year is no different than previous years. Once filing your return, if your selected PIR is wrong, they will communicate that with you.

One thing I noticed is only my PIE income from funds and term funds have been noted on my IR. All the PIE distributions from listed shares are not there. The only reason that PIE income is on myIR is for the IRD to check that the correct PIR is being used.

[Bev73]

Herbert, I think your Fisher contact was trying to be helpful in an area where he didn't have sufficient expertise to comment.

My understanding is, that the fees are deducted from the gross income before the PIR tax is deducted. That is, tax is calculated on the net income.

[Bev73]

I may have put you wrong here Bev. Where on the IRD website does it state that you have the option of declaring or not declaring your PIE income? There are apparently new tax regulations from the beginning of the FY2021 tax year.

https://www.ird.govt.nz/updates/news-folder/individual-income-tax-return-ir3s-for-31-march-2021

"This is a reminder that from the 2021 income tax year, portfolio investment entity (PIE) income must be included in all individual income tax returns."

That reference is dated 3rd May 2021, so this change in policy is very recent. If all PIE income must now be included in your IR3, the discussion on which classes of income should be included when calculating your PIR number becomes moot, because all PIE income now must be included in your tax return!

Looking at my own IR3 for FY2021, which I have yet to complete, I see there is a new question Q36, requesting information on my PIE income. So you do have to declare it, although it looks like it lies outside of the rest of your income tax calculations.

SNOOPY

Thanks Snoopy and 777
You have solved my problem.

[Snoopy]

Snoopy I am sure you are wrong in interpretation and this year is no different than previous years.


You may be correct 777. The IRD reference page for calculating individual PIR figures would certainly indicate you are correct for FY2021 at least. The problem is there is no date on that page. So there is no way to know if it has been rewritten for FY2021. Given the law on including PIE information in your IR3 tax return for FY2021 has been rewritten, I would think the referenced PIR calculation page would have been rewritten at the same time. But there is no way to know for sure. And the best indication of what was on the equivalent web page last year (which no longer exists) is to look at the downstream calculation forms and instructions (that still do exist), in the form of IR855-2020.

I don't know if the intent on how to calculate a PIR rate has changed from FY2020 to FY2021. All I can do is follow the procedure on the forms printed at the time. And my conclusion on doing this is that for FY2020 at least (when form IR855-2020 was created) people should not include their PIE income in calculating their PIR. The form seems quite clear on this matter to me. Whether that was the intention of the form, I cannot say. Maybe IRD drafted the form in a way that it could be interpreted in more than one way, by mistake? But if you follow the instructions in the IRD form as stated with your interpretation being honestly held and also being in line with the law as espoused in the form, I don't see how you can be called out as doing your PIR calculation wrongly.



Once filing your return, if your selected PIR is wrong, they will communicate that with you.

One thing I noticed is only my PIE income from funds and term funds have been noted on my IR. All the PIE distributions from listed shares are not there. The only reason that PIE income is on myIR is for the IRD to check that the correct PIR is being used.


What happened to me was that the bank changed my PIR rate on my PIE cash fund midway through the year, This was not under any instruction from me. I had given them the correct PIR rate. They just changed it with no consultation which is why I didn't know about it! The bank later corrected their error without telling me, which is why I had not understand that anything had gone wrong. It was the IRD that picked up the error and at first I thought it was the IRD that had made a mistake. It took a methodical going through the bank statements by me to confirm what the IRD already knew - it was the bank's fault all along.

All this happened last year, before there was any requirement to add PIE income information to one's own IR3 return. So I don't accept your explanation that this PIE information is required to check if you are on the right PIR rate. In my case the IRD were able to do this without any input from me, because they got their information directly from the bank.

As it happens, I am on the 28% PIE rate myself, and I have enough non-PIE income to ensure that I won't drop below that rate. I don't have direct experience with what happens when you are 'on the cusp' between two PIE rates.

SNOOPY

[777]

Your post

"All this happened last year, before there was any requirement to add PIE income information to one's own IR3 return. So I don't accept your explanation that this PIE information is required to check if you are on the right PIR rate. In my case the IRD were able to do this without any input from me, because they got their information directly from the bank."



You don't have to add PIE to your return. The IRD will do the calculation in our case (28%) not using it. They just calculate your tax as we used to manually do it without PIE income.. If you put it in your return then you have to pay tax on it at your marginal rate. Who would want to do that? I'll stick to my what I posted.

You are over complicating the whole procedure. It is relatively simple especially if you are on the 28% rate.

[777]

Duplicated again.

[herbert240]

Herbert, I think your Fisher contact was trying to be helpful in an area where he didn't have sufficient expertise to comment.

My understanding is, that the fees are deducted from the gross income before the PIR tax is deducted. That is, tax is calculated on the net income.

Thanks Bev (and 777) I guess I have to acknowledge IRD ruling and brace myself if they decide to check previous tax returns and strike out the expenses I have "incorrectly" claimed but which they had previously allowed
.

[Snoopy]

You don't have to add PIE to your return. The IRD will do the calculation in our case (28%) not using it. They just calculate your tax as we used to manually do it without PIE income.. If you put it in your return then you have to pay tax on it at your marginal rate. Who would want to do that? I'll stick to my what I posted.

You are over complicating the whole procedure. It is relatively simple especially if you are on the 28% rate.


I am afraid the process is no longer as simple as you claim.

References I refer to are in the IR3G guide document for FY2021

Under "Question 4 New Zealand Dividends"

"If you receive dividends from a portfolio investment entity (PIE) that is a listed company and does not use your prescribed investor rate, you can decide whether or not to include the dividends in your return."

Under Question 36 "Portfolio Investment Entity calculation"

"Copy the Total PIE deductions and Total PIE Income/Loss from your Summary of Income, details in myIR or your investor statements to boxes 36A and 36B of your return. Then copy box 36A to Box 2 and 36B to Box 1 in the worksheet below."

If you decide to declare your PIE dividend income under question 4, the new instructions also require you to declare it under question 36 as well. This means that when you add your PIE income to your declared other income you will be counting any declared PIE income twice. This looks like a mistake in the IR3 instructions. All scenarios have not been thought through.

Clearly you do have to add PIE to your return, as question 36 on the IR3 specifically asks for it.

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

[777]

Well All my taxable income and all my PIE income was correctly recorded on myIR. The IRD did my tax return and emailed me to look at it and if correct then submit it. Which I did. They did not include my PIE income.

snoopy there would be little point in having PIR rates if all you were going to do was have to pay the difference between what you declared and your marginal rate. Defeats the purpose altogether.

This is from page 24 of the guide

Investments in Portfolio Investment Entities (PIEs)
This year all attributed portfolio investment entity (PIE) income received by New Zealand resident individuals will be checked to make sure it has been taxed at the right prescribed investor rate (PIR) for the full year.
Because PIE income is taxed differently to your other taxable income, your annual income tax calculation now includes a separate PIE calculation. This is to work out whether you have paid the right amount
of tax on your PIE income based on the PIR you should have used. To find out what PIR you should be using, go to ird.govt.nz/pir
If you did not use the correct PIR for the full year and the outcome of the calculation is
• you did not pay enough tax, the difference is added to your tax on taxable income in Box 37.
• you paid too much tax, the difference is used to reduce your tax to pay and any remaining credit refunded as part of calculating residual income tax at Box 37A.
Page 42 has a worksheet to help you with the PIE calculation.

It is simply to check that you are using the correct PIR. Nothing else. It is not included in your return.

There is not much more I can say on the matter.

Best of luck.

[herbert240]

A reasonable summation I think. I am surprised that Fishers give tax advice though.

Yes, in a way I am surprised too 777. FNZ ,Custodian for Fisher Funds Investments (and other coys also I imagine) send out their Tax User Guide with their Tax Report to assist with tax return preparation. They repeatedly state that investors should seek advice from a professional tax adviser. I have difficulty knowing who that brilliant person would be. I asked my accountant but he wasn't sure and said he would have to go to a third party (not sure who) and that while it would be a definitive answer it would cost $150.00!! Beats me why it has to be so difficult. In the guide FNZ say they assume fees and charges are deductible (item 20 in the report )and even show what box to put item 20 expenses in the IR3! Hello?!

I think I may have opened a "can of worms" and I wonder how many other Fisher Funds investors have filed incorrect tax returns over the years which IRD have accepted... up until now!

[SBQ]

Yes, in a way I am surprised too 777. FNZ ,Custodian for Fisher Funds Investments (and other coys also I imagine) send out their Tax User Guide with their Tax Report to assist with tax return preparation. They repeatedly state that investors should seek advice from a professional tax adviser. I have difficulty knowing who that brilliant person would be. I asked my accountant but he wasn't sure and said he would have to go to a third party (not sure who) and that while it would be a definitive answer it would cost $150.00!! Beats me why it has to be so difficult. In the guide FNZ say they assume fees and charges are deductible (item 20 in the report )and even show what box to put item 20 expenses in the IR3! Hello?!

I think I may have opened a "can of worms" and I wonder how many other Fisher Funds investors have filed incorrect tax returns over the years which IRD have accepted... up until now!

No surprise here - I can assure you if you lived in Canada or in the US and had a CFP handling your investments, they would know exactly of your tax situation. I don't know why in NZ CFPs here will not give advice on taxation. It's almost like they're so useless to begin with yet the NZ FMA insists these groups of people need to be regulated by them when they offer little advice to begin with. I will tell you, if more widely knowledge in NZ was provided to investors into say Kiwi Saver or managed fund, you will find more and more would not bother and go with the investing in residential property way. What i've seen is the way shares and KS has been marketed in NZ, the complexities of it adds to it's appeal (maybe?).

$150 is cheap - I know accountants that charge $400/hr.

[herbert240]

No surprise here - I can assure you if you lived in Canada or in the US and had a CFP handling your investments, they would know exactly of your tax situation. I don't know why in NZ CFPs here will not give advice on taxation. It's almost like they're so useless to begin with yet the NZ FMA insists these groups of people need to be regulated by them when they offer little advice to begin with. I will tell you, if more widely knowledge in NZ was provided to investors into say Kiwi Saver or managed fund, you will find more and more would not bother and go with the investing in residential property way. What i've seen is the way shares and KS has been marketed in NZ, the complexities of it adds to it's appeal (maybe?).

$150 is cheap - I know accountants that charge $400/hr.

I hear ya SBQ! I find it so frustrating to have to go "digging" for info that should be clearly available without any ambiguity. As far as the $150 goes I agree. But i was bemused why an accountant who should be on top of my query should have to go to a third party to find out about my issue and then charge me back!

[fungus pudding]

No surprise here - I can assure you if you lived in Canada or in the US and had a CFP handling your investments, they would know exactly of your tax situation. I don't know why in NZ CFPs here will not give advice on taxation. It's almost like they're so useless to begin with yet the NZ FMA insists these groups of people need to be regulated by them when they offer little advice to begin with. I will tell you, if more widely knowledge in NZ was provided to investors into say Kiwi Saver or managed fund, you will find more and more would not bother and go with the investing in residential property way. What i've seen is the way shares and KS has been marketed in NZ, the complexities of it adds to it's appeal (maybe?).

$150 is cheap - I know accountants that charge $400/hr.

SBQ - I'm mildly curious. Are you Canadian, or did you just live there for some time?

[fungus pudding]

No surprise here - I can assure you if you lived in Canada or in the US and had a CFP handling your investments, they would know exactly of your tax situation. I don't know why in NZ CFPs here will not give advice on taxation. It's almost like they're so useless to begin with yet the NZ FMA insists these groups of people need to be regulated by them when they offer little advice to begin with. I will tell you, if more widely knowledge in NZ was provided to investors into say Kiwi Saver or managed fund, you will find more and more would not bother and go with the investing in residential property way. What i've seen is the way shares and KS has been marketed in NZ, the complexities of it adds to it's appeal (maybe?).

$150 is cheap - I know accountants that charge $400/hr.

SBQ - I'm mildly curious. Are you Canadian, or did you just live there for some time?

[SBQ]

SBQ - I'm mildly curious. Are you Canadian, or did you just live there for some time?

Yes i'm an ex-pat Canadian with a background in Finance studies + BA in Economics. Upon my arrival to NZ some 25 years ago, it was considerable learning experience going from a time where foreign investment gains were not taxable -> a full on mess we have today with FIF (what shares are FIF exempted or not), the ambiguity on PIE funds, management fees from top to bottom when a person speaks to a financial advisor (if that adviser takes what we call in Canada a "Trailer Fee" or basically a kick back by the managed funds for pointing their clients to buy their managed funds), front & back load fees, etc. One thing certain as Warren Buffet puts it, "There is no shortage of the helpers in the finance industry trying to sell you on investments that you don't need... and as a sum of the whole, more money has been sent to those helpers than the amount of returns that investors actually see" (i'm paraphrasing).

It's very interesting, the time when I left Canada was a period I hated the most about their taxation system. Income taxes were very high back then, likewise was GST/PST/HST in some provinces paying as much as 18%. Back then they had rules like a managed fund must not exceed 33% foreign content. Individuals had complex tax filing if they owned US equities directly. It was a mess but when I arrived in NZ, we had no tax on foreign investments. Not even a disclosure was required.

Unfortunately I must say the tables had completely turned around. Canada had reduced income taxes through scaling the income brackets. Indexed the tax free personal exemption limits (ie 1st $10K of income is 0% income tax). GST was reduced to 5%. Lowering of import tariffs. To multiple plans for savings and investments to suit individual needs. Those who were disabled were able to have RDSP where portfolio gains 100% tax free. Hensen Trusts for the disabled where a trust is not taxed at 45% but instead, incomes in the such a trust would be taxed at the individual's personal income tax rate (CRA has to approve of the person's disability). Uni education keeps rising so the gov't brought out RESP (again, the gains & dividends are tax free for when the child is finished highschool, they use those funds to pay for schooling). Then there's TFSA which is available for EVERYONE over the age of 18. Indexed to inflation, currently $6,000 a year you put to your investment account and all gains are 100% tax free. You can withdraw and not lose the reserve amount if you put back those funds later on.

When I look at what NZ has done over the past 25 years - it's certainly clear that they've only appealed to the rich and those owning houses. No plan to make education affordable - certainly giving 1st year uni tuition free is not a sustainable plan. Where are the savings incentives for those with disabilities? I saw NZ GST go from 10% to 15% in that same period. Now we have all sort of regulations that he FMA is trying to shove down people's throat. Stupid issues like "Oh you should not be putting your $ overseas in a foreign bank account because they should be licensed by the FMA". HELLO???? HELLOOOO?? NONE of the NZ banks have depository insurance! TDAmeritrade / Charles Schwab has the standard SIPC $500K coverage in addition to $150 MILLION coverage per account holder! Yet the NZ FMA believes they are the authority in protecting individual's assets invested abroad?

Ok I think my rant is getting too serious. All i'm asking is there needs to be more clarity in the NZ financial industry from both investment & TAXATION point of view. And the FMA needs to quit creating an illusion that NZ is not the centre of the world in terms of investment choices.

[Snoopy]

I have been having some discussion on PIE tax treatment of investments on the PFI thread. Rather than bog that thread down 'off topic' I have decided to resurrect this one. I thought I would go to the official source, the IRD website, to get the definitive word on some of these tax matters. I am afraid that following the official site on PIE tax matters is not easy. Starting with the question: "What is a listed PIE?" Surely that would not be too difficult a question for the IRD to answer! Here is what they had to say.

From
https://www.ird.govt.nz/roles/portfolio-investment-entities/eligibility-to-be-a-portfolio-investment-entity

Requirements for a listed PIE

1/ At least 90% of the entity’s income must be passive.
2/ Be or about to be listed on a recognised stock exchange in New Zealand.
3/ Have only one investment class.
4/ Investor interests must give the same rights to entity income.
5/ Full imputation credit.

------------------------

Aren't Kingfish a listed PIE? And aren't they active investors? If they are actively managing those funds it sounds like they are not a passive or index fund manager. So it sounds like Kingfish are not entitled to be a PIE! Who knew that? Being listed on an NZ exchange is important. But don't worry if you are not listed because you can claim you are 'about to be listed'! That is a good loophole to drive a truck through. I see that a PIE is only allowed 'one investment class'. So you can't have unit holders and warrant holders in the same PIE as an example. Anyone told Kingfish about that? "Investor Interests must give the same rights to equity income" I think this is saying that all of the PIE equity income must be shared in proportion to investor interests. But it is the equity income that gives the investor the interest - not the other way around. IRD have picked a very confusing way to denote things

Lastly we come to the final clanger, which looks relevant to the tax matter I am interested in: "Full imputation credit." What does that mean? There is no verb, and no declaration of what is the subject or object in this 'sentence'. Does the PIE give, take, or ignore imputation credits? Do they have to have them or not have them? The explanation provided here is completely without meaning or direction.

I don't have a clue what any of the requirements are for a listed PIE now that I have read the IRD introductory page. That page is pure drivel, nothing more.

SNOOPY

[Snoopy]

I don't have a clue what any of the requirements are for a listed PIE now that I have read the IRD introductory page. That page is pure drivel, nothing more.


I am looking through the guide below, with my eye on information in regard to 'listed PIEs', which is one of four kinds.
https://www.ird.govt.nz/-/media/project/ir/home/documents/forms-and-guides/ir800---ir899/ir860/ir860-2021.pdf?modified=20220119011852&modified=20220119011852

Notes from the above link are below (I simply put the word 'listed' into the pdf 'document word search' and saw what came up.)

A 'listed PIE' (LP), a PIE that may be found on the NZX, is one of four PIE classifications and is not an MRP.

However an alternatively classified 'Multi-rate PIE' (MRP), an entity that contains a foreign investment PIE, can still be listed on an index in New Zealand, without being a classified 'listed PIE'.

Listed PIEs do not file 'PIE periodic returns' or 'annual reconciliations' and are required to continue to file income tax returns.

Listed PIEs do not pass losses out to investors.

Listed PIEs may pay dividends. Dividends paid by a listed PIE are required to be fully credited to the extent permitted by the imputation credits available (IOW listed PIEs cannot choose not to pass tax credits on).

Unlike other PIEs, 'listed PIEs' are not required to provide quarterly reporting.

From p12 of this document there is a list of collective requirements for a 'listed PIE' that contain details that were absent from the 'drivel content list' from the post above:
"Passive income, (includes such things) such as dividends, interest and rent. For example: A company may run a supermarket. If its interest in the supermarket business equals or exceeds 10% (the investment type and income type requirements) of the total income of the
company, it cannot become a PIE."

From p14
Imputation credit requirement: All distributions to members of an investor class must be fully imputed for the purpose of establishing the available subscribed capital amount. The extent that imputation credits are available is determined by the directors of the entity.

An MRP cannot maintain an ICA (Imputation Credit Account).

'Listed PIE's must maintain an ICA.

From p19
Distributions or dividends from listed PIEs to shareholders
Distributions or dividends to New Zealand resident natural persons and New Zealand resident trustees that are shareholders in a listed PIE are excluded income unless the shareholder includes the dividend in their tax return. The amount of any distribution or dividend that is not fully imputed is also considered excluded income of the shareholder. These dividends are not liable for Resident Withholding Tax nor NRWT

From p54
"Where shares in a listed PIE are held as part of a share-trading business, any gains received on sale of the shares will be taxable, to an investor who is not a PIE."

Investor Expenses
Generally investor fees charged by the MRP in relation to an investor's interest in the MRP will be taken into account when it calculates the tax liability for the investor. The investor will not be able to claim the fees in their tax return.

SNOOPY