Pie funds

[777]

Yes, that is what I am referring to 777 - I wasn't clear enough. It wasn't IRD who charged me a PIE tax - just Investnow. Perhaps I'm not comparing apples with apples but I don't understand why I'm paying PIE tax on the fund each FY but not on a share. Surely, the only time I make a profit or loss is upon selling, which is when the tax should be applied on the capital gain. I feel that I am better off if I had $100K invested in a PIE share like Barramundi when I'm only paying tax on the dividend while I continue to hold the base shares irrespective if they increase in value. However, if I have $100K invested in a PIE fund such as those offered by Investnow - then I pay tax on any gains throughout the year as well as tax on any dividends I get.

I think you will find that in your example of BRM that tax is being paid by the fund and included in the NTA given each week. It is just that you don't see it.

[Joshuatree]

i have no funds with pie , i was just alluding to the fact some funds concentrated in energy / commodity sectors are doing well this yr at this point in time.
unfortunate for pie they didnt read the tea leaves correctly late last yr and missed the boom in these sectors.

I was asking what fund you are in,but you don't own any,just comparing pie with some random energy funds?

[Snoopy]

Yes, that is what I am referring to 777 - I wasn't clear enough. It wasn't IRD who charged me a PIE tax - just Investnow.

According to this reference:

https://investnow.co.nz/faq-items/wh...ees-and-costs/

"InvestNow does not charge any transaction or admin fees."

"The investment managers on InvestNow will have different management fees and in-fund costs. You should read the relevant disclosure material for each specific fund to ascertain what the management fees, in-fund costs, buy and sell spreads (also commonly called entry and exit costs), and other costs and expenses are."

On the Invest page we display fees for each fund."

Investnow do not charge any fees. What you are likely seeing are aggregated fees from the fund managers that you are investing with displayed through Investnow. Investnow itself is charging you nothing (according to their website anyway).

Perhaps I'm not comparing apples with apples but I don't understand why I'm paying PIE tax on the fund each FY but not on a share. Surely, the only time I make a profit or loss is upon selling, which is when the tax should be applied on the capital gain. I feel that I am better off if I had $100K invested in a PIE share like Barramundi when I'm only paying tax on the dividend while I continue to hold the base shares irrespective if they increase in value. However, if I have $100K invested in a PIE fund such as those offered by Investnow - then I pay tax on any gains throughout the year as well as tax on any dividends I get.

Are you sure about that emboldened bit? Are you talking about an Australasian share fund? Or are you talking about a global share fund? If the latter you may be paying a tax on the share balance, because it would come under the FIF tax regime. I know some here like the Fisher funds such as Marlin, because they take the tax worries away from individual investors and are a PIE. But of course Marlin do pay the FIF tax. It is just that they do not report it to individual shareholders. Thus the 'tax simplification' that some investors like is achieved by drawing the curtain down on the back office that is paying the tax. As a unit investor you will still be paying the FIF tax, but for you they will file it in a different tax box and call it PIE tax (perhaps). Could that be what you are referring to?

Not sure about your capital gains tax comment either. Unless you specifically bought the fund units with the specific intention to reap a capital gain, you shouldn't have to pay any capital gains tax when you sell.

SNOOPY

[Mickey]

Thanks Snoopy. I fear I've confused everyone including myself....

Last year, I received the following:
"We've calculated your PIE tax obligation for the tax year ending 31 March 2021.
Your PIE tax obligation for your account(s) are as follows:
$ 336.38"

So, I paid that rather than have my units sold to recover that amount.

I then read on the site the following about PIE Tax:

"How is PIE tax calculated?
PIE tax is not directly related to the distributions paid by the fund, or by the change in value of the fund – you might still owe PIE tax even if the fund loses value.

The PIE attributes its income/loss from its investments, expenses and tax credits across each day in the year. The net taxable income and tax credits are divided up among all of the units of the fund, and a share of the income and credits is attributed to everyone investing in the fund. PIE tax is then calculated based on each investors’ PIR."

So.....in my simplistic world - I parted out $336.38 of my money for what appears to be nothing in return. Had I had the same amount invested in shares - I wouldn't have had to pay anything.

Clearly I've got a bit to learn so will spend some time over the weekend learning how this all works.

Thanks again for peoples feedback and apologies if I haven't explained myself well enough.

[Snoopy]

Last year, I received the following:
"We've calculated your PIE tax obligation for the tax year ending 31 March 2021.
Your PIE tax obligation for your account(s) are as follows:
$ 336.38"

So, I paid that rather than have my units sold to recover that amount.

I am not doubting your version of events Mickey. You know what happened to you. But it does seem a very strange turn of circumstances. The whole purpose of PIEs, as I understood them, was to make thing easier for the 'Mom and dad' investor. All the tax paperwork would be taken care of by the investment fund, so the taxpayer had nothing to do. And if they were a top rate taxpayer, then they would even save a bit of tax to boot, due to the top PIE tax rate being 28%. What was not to like? Yet somehow the funds served you up a PIE headache.

I then read on the site the following about PIE Tax:

"How is PIE tax calculated?
PIE tax is not directly related to the distributions paid by the fund, or by the change in value of the fund – you might still owe PIE tax even if the fund loses value.

The PIE attributes its income/loss from its investments, expenses and tax credits across each day in the year. The net taxable income and tax credits are divided up among all of the units of the fund, and a share of the income and credits is attributed to everyone investing in the fund. PIE tax is then calculated based on each investors’ PIR."

I can't say I know 100% on this either. But the company tax rate is 28% in NZ, and that matches the top PIE tax rate (also 28%). So an NZ company should be able to pay their whole dividend to a PIE shareholding entity, without the extra withholding tax deduction that mere mortal shareholders have to pay. From there, the PIE can theoretically pass that whole dividend through to the PIE unit-holder. Of course there will be costs incurred in running the PIE, which will come out of unit-holders returns. But generally a PIE is a very tax efficient way for a unit-holder to invest and gather dividends.

I thought there was no capital gains tax to pay when a PIE sold assets for profit (well on NZ assets at least). (Although IIRC in the dim distant past, NZ funds were taxed for rebalancing share portfolio assets). Likewise there are no capital loss clawbacks. So I don't understand why your referenced material hinted there was some indirect tax related to the change in value of the fund capital.

The point about spreading fund expenses and everyone's share of tax credits across every day of the whole year I can understand. If the fund didn't have that, then some unit holders would theoretically be able to 'game the system' by trading to 'harvest dividends' and 'dodge costs'.

So.....in my simplistic world - I parted out $336.38 of my money for what appears to be nothing in return. Had I had the same amount invested in shares - I wouldn't have had to pay anything.

Not necessarily. You may have had extra withholding tax deducted from your dividends if you held those 'fund shares' in your own name. I am still baffled as to how you were sent a PIE related tax bill via your funds though.

SNOOPY

[Snoopy]

I am not doubting your version of events Mickey. You know what happened to you. But it does seem a very strange turn of circumstances. The whole purpose of PIEs, as I understood them, was to make thing easier for the 'Mom and dad' investor. All the tax paperwork would be taken care of by the investment fund, so the taxpayer had nothing to do. And if they were a top rate taxpayer, then they would even save a bit of tax to boot, due to the top PIE tax rate being 28%. What was not to like? Yet somehow the funds served you up a PIE headache.

Mickey, I was doing some background reading on my own behalf and found this PIE tax information explanation under Section 6 (page 27) in the Kiwi Wealth Managed Funds documentation

https://www.kiwiwealth.co.nz/assets/...nformation.pdf

"Provided that you advise us of your correct PIR and IRD number, tax paid by a Fund on income attributed to you will generally be a final tax. This means, in most circumstances, you will not have an obligation to file a New Zealand income tax return in respect of PIE income attributed to you from a Fund."

"If you have not advised us your correct PIR and consequently your PIE income is taxed at a:

i/ higher PIR than it should have been, if you are a natural person, any PIE tax over-withheld will be used to reduce any income tax liability you may have for the tax year and any remaining amount will be refunded to you (other investors will not receive a refund of any over-withheld tax)

ii/ lower PIR than it should have been, you may need to file an income tax return and be liable to Inland Revenue for further tax and penalties."

Could ii/ have happened to you?

SNOOPY

[Snoopy]

Are you talking about a global share fund? You may be paying a tax on the share balance, because it would come under the FIF tax regime. I know some here like the Fisher funds such as Marlin, because they take the tax worries away from individual investors and are a PIE. But of course Marlin do pay the FIF tax. It is just that they do not report it to individual shareholders. Thus the 'tax simplification' that some investors like is achieved by drawing the curtain down on the back office that is paying the tax. As a unit investor you will still be paying the FIF tax, but for you they will file it in a different tax box and call it PIE tax (perhaps). Could that be what you are referring to?

More on calculating PIE tax from p28 of the document below on 'Calculating PIE Tax'.

https://www.kiwiwealth.co.nz/assets/...nformation.pdf

"As a PIE, any gains made by a Fund from disposing of shares in New Zealand resident companies and certain Australian resident listed companies will be excluded from its taxable income."

That confirms that any capital gains on NZ shares and most Oz shares are not taxed on their capital gains. So holding NZ and Oz shares in a PIE fund will not see you taxed at a higher rate than if you held those shares as an individual.

"Tax on most overseas shares and interests in managed funds held by a Fund will be calculated using either the fair dividend rate (‘FDR’) or the comparative value (‘CV’) methods (both collectively called the 'Foreign Investment Fund' or FIF tax), depending on the particulars of the investment and any determinations issued by the Commissioner of Inland Revenue. Under the FDR method, a Fund will be deemed to have derived taxable income of 5% per annum of the opening market value of the relevant overseas shares and interests in managed funds at the start of each valuation period (e.g. weekly). This is adjusted for any quick sales (being relevant overseas shares and interests in managed funds purchased and sold within the same period). Any dividends or other returns flowing from overseas shares and interests in managed funds that are taxed under the FDR method will not be separately taxed in New Zealand. Also under the FDR method, there are no tax deductions for any losses in respect of holdings in overseas shares and interests in managed funds."

"Most overseas shares and interests in managed funds held by a Fund are taxed pursuant to the FDR method."

The above confirms that for non-Australasian holdings your share fund is definitely paying FDR tax. So it is just like I had assumed. Your PIE fund are paying FDR tax but not telling you they are doing so. Instead they must be telling you that the FDR tax is just an 'extra' PIE tax. Such a PIE tax is different from the PIE tax paid on dividends. That tax is paid by the company making the earnings and passed through to the PIE holding those shares and then on to you. However in the case of the FDR tax (which the fund is telling you is a PIE tax), that tax is incurred by the PIE fund itself. So the fund has to pay it, which means that you have to pay it. My guess Mickey, is that this is what the $336.38 PIE tax bill that your fund says you owe is. It is actually your FDR tax under another name.

If this is true, this would also explain why you are being taxed on a loss. The FDR tax is based on the value of your overseas holdings at the start of each tax year, regardless of whether you have made money or lost money up until that point.

SNOOPY

[kiwico]

This is why it's always a toss up between being in a PIE of going the down the direct holding and the FIF regime. If things are going down or not up 5% I see it as being better in the FIF regime - it might be at 33% tax rate but you don't have to pay tax on losses or a small gain.

But in a good year you want to be in a PIE as you get taxed 28% rate. If only I had a crystal ball!

[percy]

Changes.
https://sendy.tarawera.co.nz/l/J6oLV...YvaohaRyW0xzIA

[Jaa]

Changes.
https://sendy.tarawera.co.nz/l/J6oLV...YvaohaRyW0xzIA

Two of the better performing fund managers after Mike himself IMO. A loss for PIE, Discovery could be interesting.