RWT vs PIR: Which Rate Taxes Your NZ Savings & Funds?

New Zealand taxes savings and investment income through two different systems, and which one applies depends on what you’re invested in, not how much you earn. Bank interest runs on RWT; PIE funds run on PIR. Mixing them up — or picking the wrong rate within each — is one of the most common reasons people get a surprise bill at year-end. Here’s how to tell them apart and choose correctly.

RWT vs PIR at a Glance

The headline difference: PIR is capped at 28%, even if your income would otherwise be taxed at 30%, 33% or 39%. That cap is the main reason PIE funds can be tax-efficient for higher earners.

RWT: Tax on Bank Interest

When your bank pays you interest, it deducts Resident Withholding Tax before the money hits your account. You tell the bank which RWT rate to use, and that rate should match your total taxable income:

• 10.5% — total income up to $15,600
• 17.5% — $15,601 to $53,500
• 30% — $53,501 to $78,100
• 33% — $78,101 to $180,000
• 39% — over $180,000

If you don’t pick a rate, the bank applies the default 33%. If you’ve never given the bank your IRD number, it must deduct at the no-notification rate of 45% — an expensive reason to make sure your IRD number is on file.

Worked example

You earn $60,000 in salary and $1,000 in bank interest. Your income sits in the 30% band, so you choose a 30% RWT rate. The bank deducts $300 on your interest, leaving you $700. Because 30% matches your marginal rate, there’s nothing more to pay or refund at year-end on that interest.

PIR: Tax on PIE Funds

KiwiSaver and most managed funds are Portfolio Investment Entities (PIEs). Their income is taxed at your Prescribed Investor Rate (PIR), which you give to the fund provider. Your PIR is set by the lower of your taxable income (excl. PIE income) in either of your last two income years:

• 10.5% — taxable income (excl. PIE) ≤ $14,000 AND combined (taxable + PIE) income ≤ $48,000, using the lower of your last two income years
• 17.5% — taxable income (excl. PIE) ≤ $48,000 AND combined income ≤ $70,000, using the lower of your last two income years
• 28% — anyone who doesn’t qualify for 10.5% or 17.5% (also the maximum — PIR never exceeds 28%, even at the 39% top PAYE bracket)

Don’t confuse these with the PAYE/RWT brackets. PIR thresholds ($14,000 / $48,000 / $70,000, set by Income Tax Act 2007 §HM 60, frozen since 2010) are a completely different, coarser 3-tier ladder from the PAYE brackets ($15,600 / $53,500 / $78,100 / $180,000). They happened to be close before Budget 2024 but have since diverged — see the trap this creates below.

The two-year look-back means your PIR can lag your current income. That’s deliberate — it smooths out one-off income spikes.

Why the 28% cap matters (above $53,500)

If you earn $120,000, your salary is taxed up to 33% and your bank interest at 33%. But your PIE income is capped at 28%. For a higher earner, that’s a real saving versus holding the same assets directly. This is why PIE-structured funds are often more tax-efficient than direct shareholdings for people in the top brackets — but only once your taxable income passes $53,500. Below that, in a narrow band, the opposite is true (see below).

The $48,001–$53,500 exception: where PIE can lose

The 28% PIR cap is not a universal win. Your PIR jumps to 28% as soon as your taxable income (in the lower of your last two years) passes $48,000 — but the PAYE/RWT bracket doesn’t reach 30% until $53,501. In between, for taxable income of $48,001 to $53,500, your PAYE/RWT marginal rate is still 17.5%, while your PIE income is taxed at 28% — a 10.5 percentage-point disadvantage for holding money inside a PIE rather than directly.

Worked example: you earn $50,000 taxable income and hold $10,000 in a PIE term deposit earning $500 interest for the year.

• Via the PIE (PIR 28%): $500 × 28% = $140 tax → $360 net.
• Via a standard RWT account at your correct 17.5% rate: $500 × 17.5% = $87.50 tax → $412.50 net.

Direct/RWT wins by $52.50 in this narrow band. Once your taxable income passes $53,500, your PAYE/RWT rate jumps to 30% (then 33%, then 39%), and the PIE’s 28% cap becomes an advantage again — the crossover point is exactly $53,500.

What If You Get the Rate Wrong?

This is where RWT and PIR used to differ sharply — and where the rules have improved.

• Wrong RWT rate: Too low and you’ll owe the difference at year-end; too high and it’s refunded. RWT is always squared up in your assessment.
• Wrong PIR: Too low and IRD will bill you for the shortfall. Too high is now also refundable through your end-of-year assessment — a change from the old rule where overpaid PIE tax from a too-high PIR was simply lost.

The practical takeaway: check your PIR every year. A PIR that’s too low costs you a bill; one that’s too high ties up money until your assessment refunds it.

Quick Decision Guide

1. Is it bank interest or a dividend? Use RWT — match the rate to your income, and make sure your IRD number is on file to avoid the 45% rate.
2. Is it a PIE (KiwiSaver / managed fund)? Use your PIR — check it against your last two years’ income, and remember it’s capped at 28%.
3. Unsure which your investment is? Ask the provider whether it’s a PIE. Sharesies, InvestNow and most KiwiSaver schemes are PIEs; a term deposit is not.

Work out your correct rate with our PIR calculator. For deeper dives, see choosing the right PIR for your PIE investments, how PIE funds are taxed and our full RWT explainer.