PIE vs Direct Shares vs Bank Deposit Calculator

A Portfolio Investment Entity (PIE) is a type of NZ managed investment fund — including KiwiSaver funds — that qualifies for special tax treatment. Returns earned inside a PIE are taxed at the investor's Prescribed Investor Rate (PIR) rather than their marginal income tax rate.

Your PIR is the tax rate applied to your PIE investment income. For each of the last two income years, a rate applies only when BOTH tests are met: 10.5% needs taxable income excl. PIE of $15,600 or less AND combined income (excl. PIE + PIE) of $53,500 or less; 17.5% needs taxable income excl. PIE of $53,500 or less AND combined income of $78,100 or less; otherwise the rate is 28%. Your PIR is the lower of the two years' qualifying rates, and you must notify your PIE provider of the correct rate.

PIE income is treated as excluded income under the Income Tax Act 2007. The PIE pays tax on your behalf at your PIR, so you do not need to include it in your personal tax return. Crucially, it also does not count toward your total taxable income for other purposes.

Investors whose income puts them into the top PIR bracket — taxable income excl. PIE above $53,500, or combined income above $78,100 — benefit most from PIE funds. At this level your marginal rate is 30%, 33%, or 39%, but your PIR is capped at 28%. The higher your income, the greater the annual tax saving on interest and dividend income — compounded over years, this can result in a significantly larger portfolio. That said, if your direct NZ shares' return comes mostly from imputation-credited dividends taxed below your PIR, direct shares can still outperform a PIE fund — a qualifying NZ-share capital gain is tax-free either way, so it isn't what decides the comparison.

NZ companies pay 28% income tax on their profits before distributing dividends to shareholders. Imputation credits allow shareholders to claim credit for this pre-paid tax. If your personal marginal tax rate is 28% or below, you pay no additional tax on dividends (and may receive a refund if your rate is below 28%). If your marginal rate is above 28%, you pay the difference. This makes NZ company dividends more tax-efficient than they might initially appear.

Different types of investment returns are taxed very differently. Capital growth on qualifying NZ (or certain Australian) shares is generally tax-free — both held directly and inside a PIE that holds the same kind of shares. Dividends are taxed (at your marginal rate directly, or at PIR inside a PIE) but come with imputation credits when direct. Interest is fully taxable — at your marginal rate directly, or at PIR inside a PIE. A portfolio that generates 60% of its return as capital growth and imputation-credited dividends can significantly outperform a bank deposit, and can outperform a PIE fund too if the taxed portion is taxed more lightly directly than at your PIR. The return composition inputs let you model your specific investment mix.

The maximum PIR is 28%, even for investors on the 33% or 39% personal tax rate. This is a significant advantage for higher earners. There is no further PIR above 28% regardless of how high your income is.

Yes, but not because the excess is lost. Since 1 April 2020 IRD reconciles PIE tax in your end-of-year assessment both ways: a PIR that was too low leaves a PIE debt you have to pay, and a PIR that was too high leaves a PIE credit that is applied against any other income tax you owe, with anything remaining refunded (Income Tax Act 2007 s HM 36B). The case where too high a PIR still costs you is a year the fund makes a loss — the fund credited you at the higher rate, so IRD claws the excess back. Use your correct PIR and update it whenever your income changes.

Common PIE investments include KiwiSaver funds, NZ managed funds and unit trusts, some listed PIEs on the NZX (such as Heartland Group Holdings Ltd), and some term deposit 'PIE wrap' products offered by banks.

The calculator models annual compounding returns taxed at the relevant rate each year. PIE returns: the interest and dividend portion of your return composition is taxed at your PIR, and the capital-growth portion — modelled as a qualifying NZ-share gain — is excluded from tax, the same exclusion direct shares get. Direct NZ shares are taxed based on your return composition: interest at marginal rate, dividends adjusted for imputation credits, and capital growth tax-free. Bank deposits are taxed entirely as interest at your marginal rate, with no capital-growth exclusion available. All three paths start with the same amount and earn the same gross return, isolating the combined effect of tax rate and return composition.