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Your PIR tax rate explained
Find out why you need the correct PIR for your KiwiSaver and how to work out your tax rate in this guide.
If you invest in KiwiSaver or any other kind of PIE managed fund, you need to ensure you’re on the right PIR tax rate so you’re taxed correctly. It’s a good idea to review your PIR on a yearly basis rather than leave it up to the IRD to contact you about it.
Our guide will explain in detail what a PIR tax rate is, why it needs to be correct and how to easily calculate your correct rate.
What is a PIR?
Many managed funds in New Zealand are now registered as PIEs or ‘portfolio investment entities’. PIEs were introduced in 2007 after KiwiSaver was created, and have different tax rules to other types of investments.
If your managed fund is a PIE you’ll be taxed at a ‘prescribed investor rate’ or PIR, which is based on your annual taxable income. So the lower your income, the less tax you’ll have to pay on your investment. PIEs also benefit high earners who will pay a slightly lower rate than the highest marginal tax rate of 33%.
A PIE managed fund doesn’t require you to include PIE income on your tax return. Tax will be deducted from your taxable investment income by your PIE fund manager and tax is paid on your behalf using your PIR. As long as you’ve provided the correct PIR to your fund manager you’re all set. If you haven’t this is where things could get messy.
Why do you need a correct PIR?
It’s important to ensure that you’re paying the correct PIR on your PIE managed fund. If you don’t have the correct PIR, you could end up owing money to the IRD at the end of the tax year. You may also need to pay penalties. Regularly checking that your PIR is correct, especially if your income changes, will save you from having additional bills to pay to the IRD.
Hundreds of thousands of people were found to have been on the wrong tax rate for their KiwiSaver in 2019. If you were on a PIR that was too low, then you would have received a bill from IRD to make up any shortfall. The IRD updated its estimates shortly after to show that around 550,000 Kiwis had underpaid tax on their investments by $80-$90.
If you were on a PIR that was too high then PIE tax refunds weren’t being issued. However, legislation was changed so you can receive a refund if you’ve overpaid. The IRD now has a system in place to check whether people are on the correct PIR rate, but it’s good practice to be proactive and check it yourself on an annual basis.
If you do need to change your PIR or have any questions about your PIR you should contact the fund manager of your PIE investment or investment provider team. You also need to update your information with your bank if you have a Kiwisaver account with them, as any income earned from Kiwisaver funds is taxed at 28%. This is the default rate if no PIR has been provided.
How to work out your PIR
To calculate your PIR, you need to know your annual taxable income for each of the last two years. Your annual taxable income is a combination of:
- Taxable income. Salary/wages from all jobs, plus other taxable income such as interest, dividends and business income.
- PIE income. This is the income earned by your managed PIE fund. PIE fund managers usually send out a statement giving you this figure at the end of the tax year.
Once you add these two income sources together, you will have your annual taxable income and you can work out your PIR from the following table:
|Annual Taxable Income|
(Total taxable income + Total PIE income)
|$0 to $14,000||10.5%|
|$14,001 to $48,000||17.5%|
A PIR uses the lower amount of your taxable income over two consecutive years. So if you qualify for two PIR tax rates, you can use the lower PIR for the current year.
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