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Tax Resources

For more information about Resident Witholding Tax (RWT), Prescribed Investor Rate (PIR), Fair Dividend Rate (FDR) or your current tax rates click on one of the headings below.

Resident Witholding Tax (RWT)

What is RWT?

Resident withholding tax (RWT) is a tax deducted from a New Zealand tax resident customer’s interest income before they receive it. This means that the customer should not have to pay a lump sum in respect of their interest income at the end of the year.

How is it deducted?

RWT is deducted from the interest payment at the time of the interest payment. The amount of RWT deducted is calculated using your RWT rate at the time of the interest payment, so it is important to get it right.

What are the current RWT rates?

The Government is frequently making changes to the tax legislation. The latest tax changes came into effect in October 2010. Find out more about how tax changes affected you.

The table below outlines the current rates for more information view our Tax Summary Flyer.  

RWT rates from 1 October 2010  
Income threshold RWT rate
 $0 - $14,000  10.5% 
 $14,001 - $48,000  17.5%
 $48,001 - $70,000  30% 
 $70,001 and over  33%
 Company rate 30%* or 33%  
 No-notification rate 33%  

What is my RWT rate?

To find out your current RWT rate contact your Craigs Investment Partners Adviser. Craigs Investment Partners are not tax specialists and we recommend you confirm your RWT rate with a tax specialist or the Inland Revenue Department.

Prescribed Investor Rate (PIR)

What is PIR?

PIR stands for Prescribed Investor Rate and may also be referred to as PIE tax rate.

Your PIR will be applied to any investments you have invested in a Portfolio Investment Entity (PIE). The PIE tax rates may differ from your income tax rate.

What are the current PIR rates?

The Government is frequently making changes to the tax legislation. The latest tax changes came into effect in October 2010. Find out more about how tax changes (link to tax change page) affected you.

There are currently four rates: 0%, 10.5%, 17.5% and 28%. This may differ from your income tax rate (marginal tax rate).

For more information on PIR refer to our Tax Summary Flyer.

When do you need your PIR?

Your PIR (Prescribed Investor Rate) is required to ensure you are taxed appropriately on your PIE income. If you are investing in one of Craigs Investment Partners Defined Portfolios unit trusts (PIEs) through our kiwiSTART® Defined scheme then you might be eligible for a tax reduction. This is because your income generated from your PIE investment, will be taxed based on your PIR.

What is my PIR rate?

To find out your current PIR rate contact your Craigs Investment Partners Adviser. Craigs Investment Partners are not tax specialists and we recommend you confirm your PIR with a tax specialist or the Inland Revenue Department.

What if you submit the wrong PIR or your PIR rate changes?

If you confirm a PIR at 10.5% or 17.5%, but it should in fact be 28%, then you will have to file a tax return and pay the additional tax to the Inland Revenue (IRD penalties may apply).

If you are entitled to a PIR of 10.5% or 17.5% but have been using the 28% PIR, then the additional tax you have paid is not reimbursed. You must notify Craigs Investment Partners of your PIR or if your PIR changes.

Fair Dividend Rate (FDR)

What is the Fair Dividend Rate?

The Fair Dividend Rate (FDR) rules were introduced in April 2007. They are a component of the Foreign Investment Fund (FIF) tax income determination rules and sit alongside the Comparative Value (CV) method. These rules are used to determine assessable income derived from investments of global shares, including unit trusts.

Under FDR, global shares are deemed to generate ‘dividend income’ equal to 5% of the opening market value of the global share portfolio. In addition to this ‘dividend’ FDR assessable income includes a component of any realised gains on ‘quick sales’ undertaken throughout the tax year.

For more information on FDR refer to our FDR Information Flyer or contact a Craigs Investment Partners Adviser.

Portfolio Investment Entities (PIEs)

The PIE rules - Overview

The Portfolio Investment Entities (PIE) regime took effect from 1 October 2007. This regime improves the tax effectiveness for investors of managed funds (that choose to become PIEs), by lowering a fund investors tax rate, by exempting realised gains from tax, and by excluding PIE income from personal income.

The recent reduction to personal tax rates has maintained the potential taxation benefits of PIEs. Tax on income from a PIE is calculated at rates derived from the investors personal tax rates and capped at the rate of 28%. This structure provides tax savings for investors on higher personal tax rate investors greater than 28% (i.e. 30% and 33%).

PIE income is also ‘excluded’ income. That is, natural person investors and investors who are trustees of a family trust do not need to include dividends from a PIE in their tax returns, although they can do so if they choose. Because of this, no further tax is payable on distributions from a PIE.

Types of PIEs

There are two ‘types’ of PIEs: listed PIEs and unlisted PIEs. Unlisted PIEs are referred to as ‘portfolio tax rate entities’. It is only these unlisted PIEs that collect and hold a tax rate for their investors.

  • Listed PIEs - Listed PIEs, such as the Listed Property Vehicles, tax all investors at the same rate of 28%. Any imputation credits available are attached to dividends and investors with a lower personal tax rate can declare the dividend income and claim any excess imputation credits to reduce their income tax liability, if they have other taxable income in that income year.
    The only impact of the cuts to personal tax rates for investors in listed PIEs is that given the thresholds and rates for personal taxes are both being reduced, the relative benefit of PIE income being taxed at 28% (for those on higher tax rates) is reduced to a maximum of 5%.
  • Unlisted PIEs - Investors in unlisted PIEs can have a prescribed investor rate (PIR) applied against income generated within a PIE. Investors who have non-PIE taxable income of less than $14,000 and combined non-PIE and PIE income of less than $48,000 can use a 10.5% PIR, investors who have non-PIE taxable income of less than $48,000 and combined non-PIE and PIE income of less than $70,000 can use a 17.5% PIR. Investors with income higher than $70,000 apply a PIR of 28%.

Trusts have a ‘pass through’ option whereby they can apply a PIR that reflect the effective tax rate of beneficiaries 10.5%, 17.5% or 28%), or alternatively they can apply for a 0% rate and have no tax deducted at source. Companies, Charities and Incorporated Societies can apply for 0% PIR.

Investors with a 0% PIR will have to include all unlisted PIE income in their own tax returns.

Implications of PIEs

The PIE income thresholds and PIR rates represents a material benefit for people to source income from a PIE rather than directly. For example, applying personal tax rates, an investor who earned $70,000 from their portfolio of direct investments will have to pay $13,949 in tax, an effective tax rate of 19.9%. If they had instead sourced this $70,000 of income from a PIE their applicable tax rate would have been 17.5% and tax paid would have been $12,250. Investing in a PIE therefore would have produced a tax saving of $1,699 (a 2.4% benefit).


Table 1: New Zealand personal tax rates

 

Current Rates  
Threshold Tax Rate  
$14,000 10.5%
$14,001 to $48,000 17.5%
$48,001 to $70,000 30.0%
over $70,000 33.0%

Source: IRD and Craigs Investment Partners

Table 2: New Zealand prescribed investor tax rates

Current Rates  
Companies, Charities and Incorporated Societies 0.0%
   
Individuals earnings  
Non PIE taxable income of less than $14,000 or
Combined PIE and non PIE income less than $48,000
10.5%
Non PIE taxable income of less than $48,000 or
Combined PIE and non PIE income less than $70,000
17.5%
All other cases 28.0%
Trusts 0.0%, 10.5%, 17.5% or 28%

Source: IRD and Craigs Investment Partners

The small matter of fees

PIEs don’t come for free. The management fees incurred on an investment in a PIE will often offset the potential tax advantage.

To generate an income of $60,000 an investor may have $1 million invested in a PIE (we are assuming a yield of 6%). In 2009, a management fee of just 0.12% would be enough to offset the $1,149 tax benefit from investing in a PIE.

Conclusion – buy PIEs for diversification, not perceived tax benefits

It is never wise to allow tax to drive investment decisions. In our view, investors should consider PIEs not for their perceived tax benefit (this will be largely offset by fees) but for the usual benefits of pooled funds; diversification and access to astute fund managers. To be attractive investments, PIEs will need to 1) have a fair level of fees, 2) be prudently diversified and 3) be managed well, and in the best interests of investors.
 

Disclaimer
This report is a private communication to clients resident in New Zealand and is not intended for public circulation or publication or for the use of any third party, without the approval of Craigs Investment Partners Limited. This communication is not intended for distribution in the United States. While this report is based on information from sources, which Craigs Investment Partners Limited considers reliable, its accuracy and completeness cannot be guaranteed. Craigs Investment Partners Limited, its partners and employees do not accept liability for the results of any actions taken or not taken upon the basis of information in this report, or for any negligent mis-statements, errors or omissions. Those acting upon information and recommendations do so entirely at their own risk. Craigs Investment Partners Limited and/or its partners and employees may, from time to time, have financial interest in respect of some or all of the matters discussed. The research analyst or analysts responsible for the content of this research report certify that: (1)the views expressed and attributed to the research analyst or analysts in the research report accurately reflect their personal opinion(s) about the subject securities and issuers and/or other subject matter as appropriate; and, (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views contained in this research report. On a general basis, the efficacy of recommendations is a factor in the performance appraisals of analysts. Important: Craigs Investment Partners is not a tax adviser. We recommend individuals seek specialist advice from their usual taxation adviser. This report is based on our interpretation of current information, which is subject to change. A free disclosure statement is available on request.

Tax Changes

Resident Withholding Tax (RWT) is a tax deducted from investment income before you, as an investor, receive it.

From April 1 2011 interest payments for companies that would have had RWT deducted at 30% or 33%, will have RWT deducted at the new rate of 28%. We will default companies into the new tax rate.

The RWT rates for individuals and trusts will not change.

For all current tax rates view our Tax Rate Summary Flyer.

1 October 2010 Tax Changes - What’s in it for you?

  • Personal income tax rates, will be reduced across the board
  • The current Resident Witholding Tax (RWT) and Prescribed Investor Rates (PIR) will be reduced so they align with the new personal tax rates from 1 October 2010
  • Tax rates for Super schemes will be reduced from 30% to 28% from 1 April 2011

For example, a 35 year old who manages to save their tax savings (based on an annual salary of $70,000, invested at 5% interest per year before tax) will have an additional $110,000 invested when they reach age 65*.

* Assmes a PIR tax rate of 28%