PIE Benefits for lower income earners

[hamishmac]

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%.

[SBQ]

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.