Originally Posted by
fungus pudding
Found on the web.
Why do PIE funds have special tax rules?
PIEs were created in October 2007, following the introduction of Kiwisaver. Before then, tax laws meant that investors in New Zealand managed funds could find themselves paying much more tax compared to if they had invested directly in shares – this was a significant disincentive to investing in managed funds and would have discouraged people from joining Kiwisaver.
The PIE rules mean that investors pay tax on their own tax rate (the Prescribed Investor Rate or PIR), which is usually slightly lower than their income tax rate. Under the old rules, managed funds paid tax at the highest rate (33%), which disadvantaged investors on lower tax rates. Also, managed funds paid tax on capital gains when they sold New Zealand shares, while direct investors usually only had to pay tax on dividends – the PIE rules removed this inconsistency.