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  1. #1
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    Default PIE Benefits for lower income earners

    Is there any benefit to owning a PIE fund or PIE individual share (eg listed property trust) if you are on a 10.5% or 17.5% tax bracket?

    Or does the benefit only arise if you are 30 or 33% tax bracket

  2. #2
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    There is no benefit of investing in a PIE fund if you're under the 28% PIR rate from a tax perspective. Though investing in a PIE fund does mean no paperwork or tax filing is required, which may be a benefit for the individual that does not care about filing returns etc.

    In other threads i've voiced my concern that if the individual is serious about investing, they should invest directly with their own brokerage account. However with recent changes to NZ laws, the FMA makes it illegal for overseas brokers to serve NZ residents wanting to have trading accounts (IF THAT BROKER is not licensed with the FMA). The problem with any managed fund in NZ is they're paying tax every year on their gains. If they're invested in foreign equities where FIF comes in, then FIF will apply to the TOTAL portfolio value EVERY year regardless on years where they have a negative return. This is very different to the individual that if invested under FIF can pay not tax years that go negative, ( by choosing the CR 'Comparative Rate' instead of the FDR Fair Dividend Rate).

  3. #3
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    Quote Originally Posted by SBQ View Post
    In other threads i've voiced my concern that if the individual is serious about investing, they should invest directly with their own brokerage account. However with recent changes to NZ laws, the FMA makes it illegal for overseas brokers to serve NZ residents wanting to have trading accounts (IF THAT BROKER is not licensed with the FMA).
    So where does that leave those of us with a Interactive Broker account (which is so ideal for buying shares at ridiculously low levels of commission)?

  4. #4
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    Quote Originally Posted by kiwico View Post
    So where does that leave those of us with a Interactive Broker account (which is so ideal for buying shares at ridiculously low levels of commission)?
    You are still on the list: [ https://www.interactivebrokers.com/en/index.php?f=7021 ] & if you can log in and trade then...
    om mani peme hum

  5. #5
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    Quote Originally Posted by kiwico View Post
    So where does that leave those of us with a Interactive Broker account (which is so ideal for buying shares at ridiculously low levels of commission)?
    I have no experience with IB but I would say for the vast majority with EXISTING accounts, US brokers are still providing service to those in NZ. However as the FMA states, if they are not "licensed" by the FMA, then they would be doing so 'illegally'. Of course in US fashion, what deems a NZ law illegal in the US is beyond NZ's jurisdiction. I'm with TDAmeritrade and I know that they are not licensed with the FMA but instead, will continue to provide services to exisiting NZ clients (with restriction of no derivative trades or forex). The question is, will they open new account holders to NZ residents? I would say the hassle is not worth it because there's so many requirements - especially if it's a foreign brokerage firm that operates within the CRA agreement, which therefore require your IRD tax # and have to report their account to IRD on an annual basis. Fortunately the US is not part of the CRA but holds a same requirement for US citizens living abroad under FACTA.

    My biggest stink about all this NZ regulation is there's no real level playing field. You have FIF tax laws that apply different to the individual vs PIE/managed funds NZ. For eg. FIF does not apply if you're account is less than $50K NZD value. But in this day of age one could ask is $50K enough to retire? No way. But on the similar token would a NZ resident trust to invest large 6 fig sums abroad? Not likely so. Therefore they choose the NZ managed fund route not knowing that they're paying a higher management / operation fee than if they were to invest direct with a US broker.

  6. #6
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    Quote Originally Posted by SBQ View Post
    There is no benefit of investing in a PIE fund if you're under the 28% PIR rate from a tax perspective.
    I think the advantage for lower rate taxpayers is probably overlooked because the rates are the same as the marginal rates, but the limits are higher.

    A 17.5% marginal rate taxpayer can earn up to $70,000 of regular income plus multi-rate PIE income and have a PIR of 17.5%. If the up-to $22,000 extra income didn't come from a PIE, it would be taxed at 30%.

    A 10.5% marginal rate taxpayer can earn up to $48,000 of regular income plus multi-rate PIE income and have a PIR of 10.5%. If the up-to $34,000 extra income didn't come from a PIE, it would be taxed at 17.5%.

  7. #7
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    Quote Originally Posted by hamishmac View Post
    I think the advantage for lower rate taxpayers is probably overlooked because the rates are the same as the marginal rates, but the limits are higher.

    A 17.5% marginal rate taxpayer can earn up to $70,000 of regular income plus multi-rate PIE income and have a PIR of 17.5%. If the up-to $22,000 extra income didn't come from a PIE, it would be taxed at 30%.

    A 10.5% marginal rate taxpayer can earn up to $48,000 of regular income plus multi-rate PIE income and have a PIR of 10.5%. If the up-to $34,000 extra income didn't come from a PIE, it would be taxed at 17.5%.
    What you're saying is the managed funds that produce an income each year, the individual will get taxed at their PIR which allows a higher tax bracket than if the individual earned income elsewhere where the brackets are a lot less. I get that.

    The whole idea of introducing PIR back in 2007 was so managed funds didn't get taxed every year at a whopping 33%. So they thought well, let's bring the rate down and widen the brackets. Still of moot interest because the individual investor could invest say NZ shares directly, never act as a trader like a managed fund would do and just sit ... sit and wait... and never have to pay capital gains tax upon the sale of those shares. I don't care how sweet financial advisors like to put it to people but in terms of taxation, it's grossly unfair when you have A) lock them in a Kiwi Saver scheme or B) learn as much about investing without the noise from the finance marketing and just buy an index ETF directly ; wait and never worry about the capital gains tax on the NZ based ETF investment. Or do something even easier and better and buy another house.

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