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How do PIR's (Prescribed Investor Rates) work?

PIR's or Prescribed Investor Rates are the taxation rates that apply to PIE's (Portfolio Investment Entities).

A PIE is an investment structure that is available for managed funds, and by using PIE's for your investments (many KiwiSaver funds are PIE's), you may be able to reduce your taxation obligation.  This is because the taxation rates for PIR's are different to the marginal tax rate that you pay on your income.

It is important to note that your PIE taxation is 'full and final'.  This means that the tax that is taken off off your PIE will be paid directly to the IRD and that your accountant cant incorporate it in your tax return.  There are some exceptions to this - for example if you are able to choose a 0% PIR if you are Trust or other entity, and then you can offset your PIE tax against other income or losses.

Therefore, it is important that you get your PIR rate correct (you don't want to be over taxed, or undertaxed!).  PIE tax is usually taken on the 31st March from your account, or if you sell or change any investments within your fund.  So there is a target date for making sure that you have the correct PIR rate.   

So, how do you make sure that you have the correct PIR rate.  If you are in doubt, check out the latest information at IRD Website - PIR Rates.

As at the date of this posting, the current PIR rates are:

Resident individuals

Taxable income was $14,000 or less

If, in either of the previous two income years your taxable income was $14,000 or less, and when combined with your PIE income or loss was ...and ...then your PIR is ...
$48,000 or less in the income year10.5%.
$48,001 to $70,000 in the income yearyou don't already qualify for 10.5%17.5%.
$70,001 or more in both of the previous two income years28%.

Taxable income was $14,001 to $48,000

If in either of the previous two income years, your taxable income plus your PIE income or loss was:

  • $70,000 or less in the income year, your PIR is 17.5%, or
  • $70,001 or more in both of the previous two income years, your PIR is 28%.

Taxable income was more than $48,000

If your taxable income was more than $48,000 in both of the previous two income years, your PIR is 28%.

Note

If for the two previous income years you qualify for two rates, your PIR is the lower rate.

For example, last year your rate is 17.5%, the previous year's rate is 10.5%, so your PIR is 10.5%.

New residents

From 1 April 2012 you need to include your worldwide income when determining your PIR. However, you may choose not to include your worldwide income for either or both of the income years, if you reasonably expect that your taxable income in either of your first two years as a resident will be significantly lower than your total income from all sources for the previous income year(s).

Please note that there are different rules for other entities (Trusts, Companies) and for non-residents.

By Peter Church



 

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