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  1. #11
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    Quote Originally Posted by Bjauck View Post
    Good point.
    Also if you select too high a PIR rate than is actually required for your income level, you are unable to get a refund of the PIE tax already paid. Whereas if you select the top RWT rate for a TD, you can always get a tax refund for any excess paid, after filing a tax return for the relevant tax period.

    However, If you select too low a PIR rate on your PIE income for your annual income level, then you could need to pay extra tax as though it were regular interest income. So I think PIE income can end up becoming quite complex for the individual. I guess the intention had been to encourage savings by offering a slightly reduced tax level. DYOR.
    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.

  2. #12
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    There is also the anomalous situation with rebates on charitable donations. Since your rebate is ultimately calculated against taxable income and you don't return Pie income you can be better off with an offset against the Term Deposit income.

  3. #13
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    Quote Originally Posted by fungus pudding View Post
    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.
    PIE funds do not 100% remove this inconsistency. The individual that invests directly does not have to pay the capital gains tax (on NZ shares) that a managed fund would. This goes back to blatant misleading information in the NZ finance marketing that investors are no where near being fully disclosed on the taxation between an individual vs the managed funds. There's a hell of a big difference when a PIE fund pays tax at the individual rates when the individual that invests directly only has to pay tax on the dividend or interest streams ; none of the capital gain is taxable. (a disclaimer! if the individual trades frequently... then the capital gain would be treated as taxable income).

    I'm also sick of NZ financial advisors not 'manning up' to be honest about the double standard / 2 measuring sticks on taxation. It's a weak excuse to say, "Oh well.. you'll need to seek a 'Tax Advisor' - I can set up an appointment for one if you would like?"

  4. #14
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    Quote Originally Posted by SBQ View Post
    PIE funds do not 100% remove this inconsistency. The individual that invests directly does not have to pay the capital gains tax (on NZ shares) that a managed fund would. This goes back to blatant misleading information in the NZ finance marketing that investors are no where near being fully disclosed on the taxation between an individual vs the managed funds. There's a hell of a big difference when a PIE fund pays tax at the individual rates when the individual that invests directly only has to pay tax on the dividend or interest streams ; none of the capital gain is taxable. (a disclaimer! if the individual trades frequently... then the capital gain would be treated as taxable income).
    SBQ did you even read Fungus's post before you replied to it?

    Fungus said:
    "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."

    This implies wither that:

    1/ PIE funds do not pay tax on capital gains for NZ based share investments, OR
    2/ Individual NZ shareholders do pay tax on share capital gains (which as a rule is not true).

    SNOOPY
    Last edited by Snoopy; 13-03-2020 at 02:19 PM.
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  5. #15
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    Quote Originally Posted by Snoopy View Post
    SBQ did you even read Fungus's post before you replied to it?

    Fungus said:
    "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."

    This implies wither that:

    1/ PIE funds do not pay tax on capital gains for NZ based share investments, OR
    2/ Individual NZ shareholders do pay tax on share capital gains (which as a rule is not true).

    SNOOPY
    1/ Regardless of the managed fund status (PIE or not), the portfolio is taxed on the gains for the simple reason, the investment is "intent to profit" ; no different to operating a business.
    2/ Individuals that invest directly on NZ shares - IF and to be clear.. IF they keep the investment long enough to show NO intent of buying and selling shares like a trading account or a managed fund would behave, THEN the capital gains are tax free (no different to holding a house for more than 5 years).

    Therefore, the PIE rules do NOT remove this inconsistency and they're not even comparable. All it does is it gives a small break for the top income earners in the 33% tax bracket. Look at the whole picture - the PIE accomplishes nothing in removing the tax differences between individuals and those into managed funds despite both would invest in the same asset class.

  6. #16
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    Quote Originally Posted by SBQ View Post
    1/ Regardless of the managed fund status (PIE or not), the portfolio is taxed on the gains for the simple reason, the investment is "intent to profit" ; no different to operating a business.
    Please provide a reference for the share investing PIE having an 'intent to profit'. I would love to know if you are right. Why would the PIE not be 'intent on receiving dividends', which means any capital gain is incidental and 'tax free'? Why would Fungus's quote that the PIE format was created to remove the tax treatment anomaly between individual investors and funds investing in NZ markets not be true?

    Kingfish which is a share investing in NZ PIE claims:

    https://www.kingfish.co.nz/investor-centre/faqs/

    "There is no tax on the distribution of capital gains to shareholders."

    But could that be because the capital gain has already been taxed within the fund, so there is no more tax to pay?

    SNOOPY
    Last edited by Snoopy; 13-03-2020 at 09:26 PM.
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  7. #17
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    Quote Originally Posted by Snoopy View Post
    Please provide a reference for the share investing PIE having an 'intent to profit'. I would love to know if you are right. Why would the PIE not be 'intent on receiving dividends', which means any capital gain is incidental and 'tax free'? Why would Fungus's quote that the PIE format was created to remove the tax treatment anomaly between individual investors and funds investing in NZ markets not be true?

    Kingfish which is a share investing in NZ PIE claims:

    https://www.kingfish.co.nz/investor-centre/faqs/

    "There is no tax on the distribution of capital gains to shareholders."

    But could that be because the capital gain has already been taxed within the fund, so there is no more tax to pay?

    SNOOPY
    In bold is correct. The whole idea of PIE is for the individual not worrying about reporting their PIE investments. The PIE fund themselves are responsible for remitting to IRD on each individual's tax they've made (capital gains, dividends, etc) earned in the managed fund. As quoted before but entirely misleading :

    "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."


    Again, the key word here is "could" but the reality is PIR didn't change anything. All managed funds in their various forms are under the same tax rules of reporting. When you strip all these differences down the only benefit PIE funds have is for the high income earner over 30% tax bracket. The NZ gov't media was wrong in addressing the 'REAL' issue of the slow KiwiSaver uptake - because capital gains from NZ residential real estate back then and today remains relatively untaxed. You are not going to persuade NZ investors from hard assets to move into a business model of managed funds that are taxed 28% or the PIR.

    Let's be real here. To the small investor (and i'm very certain this would apply to the majority of investors in NZ), the PIE rules make absolutely no difference to the individual returns at the end. 1) small investors aren't in the 30 or 33% tax bracket 2) and if they are, they could invest into the SAME shares and equities (NZ or overseas) as the so called "professional fund managers" in Kiwi Saver, yet being an individual that invests directly, they would not be subjected to the capital gains tax.

    On the FIF front, there also needs to be a distinction where the individual directly invests abroad only has FDR 5% taxable income vs some fund like Sharesies etc that offer an S&P500 ETF or Vanguard ETF to their NZ investors would end up paying CGT on the SAME INVESTED ASSET. This is the lack of transparency i'm screaming about when I talk to NZ advisors and accountants. I get annoyed when their best answer is to direct me to see a tax specialist so they can rack up another set of fees.

  8. #18
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    Quote Originally Posted by Snoopy View Post
    ...

    "There is no tax on the distribution of capital gains to shareholders."

    But could that be because the capital gain has already been taxed within the fund, so there is no more tax to pay?

    SNOOPY
    My understanding is that the PIE fund is not taxed separately.

    It is only when distributions of income are apportioned to individual investors is tax levied at the investor's PIR rate. Capital gains generated in the PIE fund are not taxed.

    https://www.nzherald.co.nz/personal-...ectid=12215861

  9. #19
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    Quote Originally Posted by Bjauck View Post
    My understanding is that the PIE fund is not taxed separately.

    It is only when distributions of income are apportioned to individual investors is tax levied at the investor's PIR rate. Capital gains generated in the PIE fund are not taxed.

    https://www.nzherald.co.nz/personal-...ectid=12215861
    Sounds about right to me.

  10. #20
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    Quote Originally Posted by Bjauck View Post
    My understanding is that the PIE fund is not taxed separately.

    It is only when distributions of income are apportioned to individual investors is tax levied at the investor's PIR rate. Capital gains generated in the PIE fund are not taxed.

    https://www.nzherald.co.nz/personal-...ectid=12215861
    Thanks for the reference, but I am not sure the author of this article, Tamsyn Parker, has a complete grasp of the subject The article is worded in a way that makes ithe issue of tax on capital gains ambiguous.

    "Funds are currently taxed using the portfolio investment entity regime which means individuals are taxed on the income from their fund at a prescribed investor rate which is based on what they earn. There are three rates - 10.5 per cent, 17.5 per cent and 28 per cent. The income tax is calculated daily and tax is paid annually. The aim is to ensure people are not taxed at a rate that exceeds their personal tax rate."

    That bit at least seems clear, even if no reference is given to confirm it,

    "Currently there is no tax on the gains from trading in New Zealand and Australian shares. Tax on foreign shares is worked out at the fair dividend rate."

    For an individual 'trading' in shares in NZ and Australia -with the aim of making a profit- is taxed. So is Ms Parker telling us that PIE funds have an advantage over the individual in this regard? That doesn't square with the levelling of the playing field argument for creating PIE. And as SBQ has pointed out, shares invested subject to the under the FIF regime pay tax in all years when in a fund. As an individual you get a tax holiday if the sum of your shares in the FIF regime makes a loss during the year. One again 'not equal'.

    SNOOPY
    Last edited by Snoopy; 15-03-2020 at 11:57 AM.
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