PIE Funds and Tax Rates: How Portfolio Investment Entities Work in NZ

Portfolio Investment Entities (PIEs) are a popular investment structure in New Zealand that offer a significant tax advantage for many investors. KiwiSaver funds, managed funds, and many term deposits are structured as PIEs. Here’s how their tax treatment works.

What Is a PIE?

A PIE is a type of managed investment fund that pays tax on behalf of its investors at each investor’s Prescribed Investor Rate (PIR) rather than at the fund level. This means your investment returns are taxed at your personal PIR, which may be lower than your marginal income tax rate.

Prescribed Investor Rates (PIR)

Your PIR is based on the lower of your taxable income (excluding PIE income) in either of the last two income years — not just your current-year income. IRD lets you use whichever of the two years gives the lower rate, so a recent pay rise doesn’t push your PIR up until the following year:

Example: if your taxable income was $40,000 two years ago and is $60,000 this year, you still use the lower ($40,000) year, giving a PIR of 17.5% — even though your current income is above $48,000.

PIR thresholds are set by Income Tax Act 2007 §HM 60 and have been frozen since 2010. They are not the same as the PAYE income-tax brackets ($15,600 / $53,500 / $78,100 / $180,000), which were raised on 31 July 2024 under Budget 2024.

The key advantage: the maximum PIR is 28%, even if your marginal tax rate is 30%, 33%, or 39%. For high earners, this means PIE investment income is taxed at a lower rate than other income.

The Tax Advantage

Consider an investor earning $100,000 salary:

• Their marginal income tax rate is 33%
• But their PIR for PIE investments is only 28%
• On $5,000 of investment returns, they save: $5,000 x (33% - 28%) = $250 in tax

For those earning over $180,000 (39% marginal rate), the saving is even larger — 11 percentage points less tax on PIE income.

PIE Income Is Final

Another benefit: PIE income taxed at your correct PIR is treated as excluded income. This means:

• It doesn’t need to be declared on your tax return
• It won’t push you into a higher tax bracket
• It won’t affect entitlements like Working for Families

This makes PIEs especially attractive for investors who want simplicity and tax efficiency.

Choosing and Updating Your PIR

When you join a PIE fund (including KiwiSaver), you must nominate your PIR. It’s important to get this right:

• Too high: You’ll overpay PIE tax during the year — but since the 2020-21 income year, this is no longer lost. IRD’s end-of-year square-up automatically refunds or credits the excess through your auto-assessment (or IR3, if you file one). See PIE tax square-up for the mechanics.
• Too low: IRD’s square-up will assess the shortfall as additional tax payable — this direction has never been refundable, so it still pays to get your PIR right

Review your PIR each year, especially if your income changes. You can update it through your fund provider or KiwiSaver scheme.

Types of PIE Investments

Common PIE-structured investments include:

• KiwiSaver funds — all KiwiSaver providers use PIE structures
• Managed funds — many NZ managed funds are PIEs
• PIE term deposits — some banks offer term deposits structured as PIEs, beneficial for higher earners (see RWT vs PIR on savings interest for when a PIE term deposit beats a standard RWT-taxed account)
• Cash PIE funds — low-risk cash funds offering the PIR tax benefit

Multi-Rate vs Single-Rate PIEs

Most retail PIEs are multi-rate PIEs, meaning each investor is taxed at their own PIR. Some wholesale or institutional PIEs are single-rate PIEs taxed at 28% for all investors.

Sources

• PIE income for businesses — IRD
• Prescribed investor rates — IRD