KFL - discount to diluted NAV

[Snoopy]

I have just received my IR3 completed by the IRD. It is exactly as I had worked out. The only reason that the PIE income is recorded on it is for the IRD to check you are using the correct PIR. It otherwise plays no part in your return. Listed PIEs are not included as the PIR is at the maximum of 28c. As I stated if you have a gross income of less than $48,000 (including any KFL you wish to add in) then you can claim the imputation credit against your income.

The above sounds right to me, although I think there is some ambiguity in the wording used. If the tax deducted from your PIE income is too high, then you can claim the over-payment of tax back. But that calculation is done by using the calculation page in the tax guide under the reference material for Question 36 in the IR3G tax guide for FY2023. The PIE tax reassessment is a ring fenced self contained calculation.

"Copy the amount in Box 5 (calculation sheet in your guide) to Box 36C of your return (part of the IR3 form itself), if you are entitled to a refund of PIE tax enter a minus sign at the end of the cents box."

You then go onto the worksheet attached to Question 37 from the IR3G guide, where you use your overall income level to calculate your tax liability. But, and here is the important bit, the PIE income you earn plays no part in your assessable tax rate - NONE!

Now if you are due for a PIE tax refund, you do this in the Question 37 work sheet in box 11. Note again that the refund number you write in here bears no connection to any of your non-PIE income, nor any taxes deducted from any other income source. Your PIE income, and the tax deducted from that, is completely ring fenced and self contained. You do not generally claim a PIE tax refund by declaring that PIE income in the dividend section of your tax return. There is no need to do such a thing.

If it is over the $48,000 then it will cost you the difference in you marginal rate and the 28c on KFL gross dividend declared and the only place to get the imputation credit is to include it in the dividend section.

I am retired as well and know they are no use to me as I am well in excess of $48,000.

Yes but if your income is over $48k why would you try to 'get' your imputation credit by shifting income from your 'PIE box' to your 'dividend income' box? All that would do would be to increase your tax bill for those PIE earnings from 28% up to your marginal tax rate for no reason. That would be the opposite of tax avoidance, which would be such a rare thing I am not sure it even has a name - tax stupidity perhaps?

SNOOPY

[SPC]

Snoopy I strongly suspect your PIE tax adjustment scenario applies to Multi rate PIEs as used by managed funds (ie. Fisher funds NZ growth fund - the non listed sibling to Kingfish) where you specify your prescribed investor rate PIR to the fund operator, and the calculation you refer too is if you've elected the wrong rate to the fund operator and are seeking to be refunded the overpaid tax.
Kingfish is a fixed rate PIE, there is no option to select a tax rate, it's fixed at 28% and refunds are not provided for in the legislation.
But you do get imputation credits which requires you to include the gross dividend in the IR3, which as previously discussed raises your base taxable position.
Multi rate PIEs do not issue imputation credits they simply deduct 'pie tax' at your chosen PIR, which you determine from other income data not known to the investment fund ie. KiwiSaver as an example.

[777]

snoopy I was merely answering alokdhir. I had nothing to change due to my income exceeding $48,000.

[Snoopy]

Snoopy I was merely answering alokdhir. I had nothing to change due to my income exceeding $48,000.

Yes I was aware of that. It is just that the way you worded your post, some might think that you meant that for certain people, it would be desirable to 'get the imputation credits' by declaring your PIE income as dividend income. Yet if your income was high enough ( >$48k was the example you gave), I am having trouble imagining any situation where this would be so.

SNOOPY

[Snoopy]

Snoopy I strongly suspect your PIE tax adjustment scenario applies to Multi rate PIEs as used by managed funds (ie. Fisher funds NZ growth fund - the non listed sibling to Kingfish) where you specify your prescribed investor rate PIR to the fund operator, and the calculation you refer too is if you've elected the wrong rate to the fund operator and are seeking to be refunded the overpaid tax.

Multi rate PIEs do not issue imputation credits they simply deduct 'pie tax' at your chosen PIR, which you determine from other income data not known to the investment fund ie. KiwiSaver as an example.

Kingfish is a fixed rate PIE, there is no option to select a tax rate, it's fixed at 28% and refunds are not provided for in the legislation.
But you do get imputation credits which requires you to include the gross dividend in the IR3, which as previously discussed raises your base taxable position.

I don't hold Kingfish, but are you sure about that (the bold bit)? I thought the whole purpose of PIEs was so that the average Joanna investor could simply buy into an investment that was professionally managed, and also be given a little tax advantage as an incentive to committing to such an investment. If Jo has to start filling out IR3 tax returns, that would seem to me to defeat the purpose of simplicity. Sure you could declare your Kingfish imputation credits as part of dividend income. But why would you want to do that? Wouldn't doing so just bump up the tax rate you have to pay on your Kingfish investment?

SNOOPY

[SPC]

Snoopy, yes to use the Imputation credits against other taxable income you will need to declare the dividend that provided those credits. Under fixed rate pie legislation you can choose not to go down that route, but you may wish to, if like alokdir your gross income is under 48k and you want to use the credits taxed at 28%, provided of course that adding the kingfish gross div does not lift your gross income above 48k. As you say the exercise would be self defeating above 48k.
The tax refund process you described is not applicable to kingfish income. It applies to managed pies that have user selected tax rates which is referred to as your PIR..
IR provides a mechanism to have excess tax returned. But not for fixed rate PIEs like kingfish.

[justakiwi]

Gee, reading through these posts, I feel much better. Seems I am not the only one who has always been a little confused about this. I have (up until now) always included my KFL and BRM dividends to claim the imputation credits as my income is well under $48,000 - but clearly that was pointless, given that I always end up with a tax refund - never tax to pay.

I do think IRD could do a better job of explaining this though.

[SPC]

JaK, so you are saying you had no other taxable income which could be reduced by applying your KFL/BRM imputation credits?
If that is the case then yes there's no point in adding your KFL/BRM income on the return. I never have.
But with rising bank deposit rates spitting out higher cash returns I may consider doing so next year, but up to the 48k ceiling.
Beyond that there is no point.

[alokdhir]

Easiest way is to do IR3 online ...as long as u put your incomes in right slots ...ie PIE income in PIE section , Dividend in NZ dividends etc ....most of the income is already pre populated ....only KFL is not as its a listed PIE who are not required to report distributions to IRD ...rest need do ....so its already there .

IRD computer itself does the calculations and provide the answer before u finally submit it ...very simple and user friendly

I just wanted to reconfirm with tax gurus here about where to put KFL income ...I got the answer ...NZ Dividends

In my case it helps to include and I need to include too ...thats why I include and get carry forward imputations credits ....maybe one day they will become useful ...just thinking they shud allow to trade in imputation credits on NZX ...after all its real tax credit ie tax paid to Govt ...so shud be made transferable like any other credit ...just a thought ...I know wont happen

Thanks Snoopy for your answer about how to use them by having some Aussie shares in portfolio

[justakiwi]

OK, so I am STILL confused.

From everything I've been reading here, I was under the impression that the imputation credits are only useful if I OWE tax. If I am already getting a refund, are you saying it would be more if I claimed the credits?

It's really not a big deal for me given the size of my holdings - total credits would probably be less than $100. A moot point now anyway, as this year I was given no opportunity to amend their assessment - it was paid into my bank account the day after I received the refund notification (with no request to "please confirm").

Having said that, it would be good to get my head around this for next year - which I obviously currently, still do not

JaK, so you are saying you had no other taxable income which could be reduced by applying your KFL/BRM imputation credits?
If that is the case then yes there's no point in adding your KFL/BRM income on the return. I never have.
But with rising bank deposit rates spitting out higher cash returns I may consider doing so next year, but up to the 48k ceiling.
Beyond that there is no point.