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PORTFOLIO INVESTMENT ENTITY A guide for PIEs
IR860 March 2019
www.ird.govt.nzPORTFOLIO INVESTMENT ENTITY GUIDE
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www.ird.govt.nz 1PORTFOLIO INVESTMENT ENTITY GUIDE
How to use this guide 3
Part 1 - Becoming a PIE Registering and becoming a portfolio investment entity (PIE) 4
PIE types 5
Return filing and payment options 7
Other PIE types 10
Transitional issues 18
Part 2 - Cessations Breaches 22
Date on which a PIE ceases 23
PIE cessation within 12 months 24
Issues to consider when ceasing a PIE other than cessations within 12 months 25
Deemed disposal and reacquisition of shares 25
Cessation notification 25
Annual reconciliation 25
Part 3 - Attribution and calculation periods Attribution period 26
Income and deductions 26
Timing rule clarification 26
Conditional entitlements/vesting periods 26
Investor attributed income/loss 27
Calculation periods 27
Changing PIE filing periods 27
Notified investor rate 28
Prescribed investor rate (PIR) 28
Part 4 - Tax calculation Assessable and taxable income 31
Calculating the tax 31
Attributed losses 32
Part 5 - Tax credits and losses Attribution of tax credits 35
Foreign tax credits 35
New Zealand tax credits 37
PIE investor proxies (PIPs) 37
Investor return adjustments 41
Part 6 - Investors Prescribed investor rate (PIR) 43
Investor statements 47
Income attributed by the MRP 50
Specific issues 54
Part 7 - Returns PIE periodic returns 57
Part 8 - Foreign investment PIE rules Introduction 69
Reporting requirement changes 77
Part 9 - PIR change transitional process Reason for two processes 84
Status quo 84
Hard close 85
Part 10 - General information Distributions 87
Reporting requirements 87
Key terms 89
www.ird.govt.nz 2PORTFOLIO INVESTMENT ENTITY GUIDE
The PIE rules also address the situation where low income earners investing in collective investment vehicles had their investment taxed at a higher rate than their marginal tax rate. For example, income from superannuation funds had been taxed at 33%, although a number of investors may have had the lower marginal tax rate of 12.5% (now 10.5%). This created a significant disincentive for these investors to save through managed funds.
Under the PIE rules, an investor with a marginal tax rate of 10.5% investing in a superannuation fund that becomes a PIE will have their investment income taxed at their prescribed investor rate (PIR) of 10.5%, provided the investor has given their PIR and IRD number to the PIE. An MRP is a type of PIE that pays tax on investment income based on the investor's rate of 0%, 10.5%, 17.5% or 28%.
The rates quoted and examples given relate to the 2012 income year unless otherwise specified.
All references in this guide refer to the Income Tax Act 2007 unless otherwise stated.
Since 1 October 2007, eligible entities can become portfolio investment entities (PIEs), which aren't taxed on gains on shares in New Zealand and certain Australian companies.
Their aim is to encourage savings by lower and middle income earners who have been reluctant to save through collective investment vehicles (such as a managed fund).
PIEs generally pay tax on investment income based on the tax rates of their investors, rather than at a flat rate.
Most PIEs fall into the multi-rate PIE (MRP) category. Unless otherwise specified, this guide is designed to primarily target the MRPs. The rules for foreign investment PIEs are covered in Part 8.
Benefits The tax rules for PIEs address some long-standing problems with the taxation of collective investment vehicles such as the difference in tax treatment when people invest directly in New Zealand shares and when they invest in a New Zealand collective investment vehicle.
Generally, before 1 October 2007, when a person invested directly in New Zealand shares held on capital account, tax was payable on dividends received and any capital gains were tax free. However, if the same investment was made through a collective investment vehicle, tax could have been payable on both dividends and any realised gains (because the collective investment vehicle would generally be in the business of share trading). The PIE rules mean that investments in New Zealand-resident (and certain Australian) companies through collective investment vehicles that elect to become PIEs will be treated similarly to direct investments.
Not all companies listed on the New Zealand stock exchange are resident in New Zealand and qualify for this treatment, eg, an entity could be resident in Singapore but also be listed on the New Zealand stock exchange.
www.ird.govt.nz 3PORTFOLIO INVESTMENT ENTITY GUIDE
The general content targets MRPs. For the specific rules for foreign investment PIEs see Part 8.
Part 1 - Becoming a PIE Explains how to register and become a PIE, including information about the different types of PIE, the options for filing returns and payment, the eligibility requirements and transitional issues.
Part 2 - Cessations This part goes through the various ways an entity can cease being a PIE.
Part 3 - Attribution and calculation periods Attribution and calculation periods determine the periods over which PIE income is calculated and attributed. This part covers the options the entity can choose from.
Part 4 - Tax calculation The requirements to calculate tax vary depending on the type of PIE. This part goes through the different options and requirements.
Part 5 - Tax credits and losses Different types of PIEs can use tax credits to reduce their tax. This part covers the requirement, including information about losses and investor return adjustments.
Part 6 - Investors This part covers all the information needed by and for investors. It determines what an investor is under the PIE rules as well as information about prescribed investor rates, income attributed by the PIE and specific issues relating to investors.
Part 7 - Returns This part covers all the return filing requirements for the different types of PIEs.
Part 8 - Foreign investment PIE This part covers the requirements specific to foreign investment PIEs. The general rules that apply to MRPs also apply to foreign investment PIEs unless stated otherwise in this part.
Part 9 - PIR change transitional process This part provides information about the options for implementing changes to the PIRs part-way through a tax year.
Part 10 - General information This part provides information about distributions to shareholders, reporting requirements for PIEs, KiwiSaver, key terms and our services (including contact information).
The information in this guide is based on current tax laws at the time of printing.
How to use this guide
www.ird.govt.nz 4PORTFOLIO INVESTMENT ENTITY GUIDE
Registration and becoming a portfolio investment entity (PIE) An entity that meets the eligibility requirements needs to register online. The online service is available at www.ird.govt.nz under "Get it done online" and registration only takes a few minutes.
Sections HM 71, 72, 72B and section 31B of the Tax Administration Act 1994
Once you have completed and submitted the online registration a letter of acknowledgment is issued within 10 working days. However, if there is a problem with the information sent the registration process may take longer.
Registration as a PIE takes effect from the later of:
• 1 October 2007
• the date of formation of the registering entity
• the date nominated in the registration as the start date
• the date 30 days before the day we receive the registration
• 29 August 2011 for a zero-rate PIE
• 1 April 2012 for a variable-rate PIE.
Trust A is established on 1 December 2009. A registration is received on 1 February 2010 requesting a start date of 1 December 2009.
The election takes effect from 2 January 2010, 30 days before the date of receipt - this being later than the date of formation of Trust A and the start date nominated in the notice (both of which are 1 December 2009).
Sections HM 72 and 72B
Balance date PIEs t