Trading PIE Investments are the Gains Taxable?

The reasoning behind weather a gain on sale is taxable or not comes down to intention when the stock was purchased.

Is there any exemption for PIE Investments? or do they fall in the same set of rules as everyone else?

My opinion is they fall in the same set of rules as everyone else.
At a guess in the case of listed PIE's such as most property trusts. They pay out "excluded" income(like dividends) which doesn't need to be included in an individual's income tax return.
This is because the PIE has already paid the tax on your behalf at your individual PIR rate.
But in regard to any gain on sale of the units you would need to go back to whether they were an investment for the yeild or bought with the intention of resale.
For a trader I would say the gains on sale aren't also "excluded" income as no tax has been deducted/paid off this profit/gain so my opinion would be that for a trader, gains on the sale of PIE investments would be taxable income.
Its only my opinion so don't rely on it but use it to make your own judgement.

I wouldnt have the foggyest but Aarons logic sounds right.

I thinking it would come down to intention. But I thought there may be an exemption for PIE investments on the basis a PIE is a "portfolio investment" and you can't really trade a portfolio.

Side question can you trade a managed fund?

How do you trade a PIE?

When you enter in to a PIE you advise of your PIR (prescribed interest rate) based on previous 2 years earnings, from this the PIE pays your tax for you. You only include you PIE on your tax return if you used the wrong rate and your income from the PIE was under taxed.

You can trade a PIE the same way you can trade an index.

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Originally Posted by skeet

How do you trade a PIE?

When you enter in to a PIE you advise of your PIR (prescribed interest rate) based on previous 2 years earnings, from this the PIE pays your tax for you. You only include you PIE on your tax return if you used the wrong rate and your income from the PIE was under taxed.

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What your talking about is only the income from your PIE investment but as an example Kiwi Income Property Trust is a PIE. You can trade the units in the trust the same way you can trade any shares on the NZX. The distributions you receive while you hold the KIP units will be excluded income but a profit on the sale of the units is a capital gain on the investment and the gain on sale may be taxable if you are a trader rather than a long term investor. If its a Cash PIE like Rabos Cash Advantage Fund there is nothing to trade becuase its the same as a savings account.

¶584-000
The portfolio investment entity regime is a system for the taxation of collective investment entities operating principally at the retail level. The investment entities are essentially managed fund vehicles.

A collective investment vehicle may attract funds for investment on a portfolio (passive) basis from both retail investors and wholesale investors. The portfolio investment entity regime provides that the returns of retail investors are effectively subject to the imposition and payment of income tax in the hands of the portfolio investment entity as a collective investment vehicle. This relieves this class of investor from the obligation to furnish a return of income reporting the investment income and making payment of the tax. Wholesale investors may find it convenient to take advantage of wider investment opportunities that investment in a portfolio investment entity may offer.

Wholesale investors and other eligible investors in the portfolio investment entity may be treated as “zero-rated” investors so as to be personally liable to report and pay tax on the investment income derived from the portfolio investment entity.

The portfolio investment entity regime as an income tax collection mechanism substantially relies on the other regimes for the determination of what is income for the portfolio investment entity. For example, income from the common practice of portfolio investment in foreign equities would be the income revealed by the foreign investment fund regime (described beginning at ¶207-200).

A specific but important exception to reliance on other regimes to identify income is to the effect that the excluded income of a portfolio investment entity includes gains from the disposal of the shares of a company resident in New Zealand or the shares of a company resident in Australia and listed on the ASX. Effectively gains from trading in both categories of share are not assessable income for the portfolio investment entity.

In Tax Information Bulletin Vol 19, No 3, April 2007 at p 45 the Commissioner explained that this is a deliberate feature of the portfolio investment entity regime. This component of portfolio investment entity taxation is in recognition of the possibility that these kinds of investment, if held directly by the investors in the portfolio investment entity, would likely be held on capital account.

The portfolio investment entity regime can be regarded as one component of a package of measures designed to encourage retirement savings. The portfolio investment entity regime shares the common commencement date of 1 October 2007 with the KiwiSaver regime established by the KiwiSaver Act 2006. Contributions by members of KiwiSaver arrangements are invested by a KiwiSaver “provider” which, in turn, may have status as a portfolio investment entity or, if not, may channel investment funds to a portfolio investment entity.

The particular feature of the portfolio investment entity regime that assists with the promotion of retirement savings is to enable the taxation of investment income on a non-distortionary basis or at a concessional rate. Taxation on a non-distortionary basis is achieved by the investment income of a lower marginal rate investor being taxed at the investor’s lower rate rather than a higher “corporate” rate that otherwise might be ascribed to a pooled investment vehicle. Taxation at a concessional rate is achieved by a lower maximum portfolio investment entity tax rate compared with the maximum marginal rate imposed on natural persons and other investors such as a superannuation fund. There is no further “top up” tax when the investment income is distributed to an investor with a higher marginal rate of tax. Again these outcomes are a deliberate feature of the portfolio investment entity regime: Tax Information Bulletin Vol 19, No 3, April 2007 at p 45.




Legislation:
Income Tax Act 2007
EB 2 MEANING OF TRADING STOCK

EB 2(1) MEANING

Trading stock means property that a person who owns or carries on a business has for the purpose of selling or exchanging in the ordinary course of the business.

EB 2(3) EXCLUSIONS

Trading stock does not include—
(a) land:
(b) depreciable property:
(c) a financial arrangement to which the financial arrangements rules or the old financial arrangements rules apply:
(d) an excepted financial arrangement that a life insurer has:
(e) an excepted financial arrangement held by a person if section CX 55 (Proceeds from disposal of investment shares) applies to the income of the person from a disposal of the excepted financial arrangement:
(f) livestock not used in a dealing business:
(g) consumable aids to be used in the process of producing trading stock:
(h) a spare part not held for sale or exchange:
(i) an emissions unit:
(j) a non-Kyoto greenhouse gas unit.

The PIE doesn't pay tax on the sale of NZ and Australian shares in the same way long term individual investors don't pay tax on these capital gains but section CX55 only applies to PIEs, the NZ Super Fund and life insurers. Individuals will still need to consider whether they are traders or investors when selling a PIE investment for a capital gain/loss.