When you join or are a member of a KiwiSaver scheme, you may be asked to confirm your Prescribed Investor Rate - also called a PIR. This video explains the ins and outs of PIRs, as well as PIEs (Portfolio Investment Entities). It may not be quite as easy as pie, but we've made it as simple as we can...
First Things First: What is a PIE?
A PIE - Portfolio Investment Entity - is a pooled investment fund which has special tax rules. Most KiwiSaver schemes are PIEs.
So that’s a PIE, what about a PIR?
The PIR is the rate of tax you pay on income from your investments in a PIE such as KiwiSaver. Your KiwiSaver provider makes the appropriate tax payments on your behalf from your KiwiSaver account to Inland Revenue according to your PIR. So you don’t need to file a tax return for your KiwiSaver interests unless you have been paying an incorrect rate.
The nitty gritty: what does a PIR look like?
Currently there are three rates that apply to KiwiSaver members: 10.5%, 17.5%, and 28% [rates valid from October 2010 and current as at June 2012].
The rate that applies to you will depend on your taxable income plus the income or loss from PIEs in each of the previous two income years.
Why should I care?
If you do not provide a PIR to your KiwiSaver provider, your provider will apply the maximum rate of 28%. If you pay too much, you cannot claim the tax back, but if you pay too little you may have to pay the extra tax to Inland Revenue, and possibly penalties as well. So it is important you let your provider know the correct PIR for your investment income.
Working out your PIR
The key thing to look at is the taxable income you earned in each of the previous two years. This includes your wages, bonuses and other payments from employment, plus government benefits, rental income, allowances, and any other sources of income that would be included in an income tax return. Next you need to add your PIE income – the value of the income from all of your PIE investments, such as the returns on your KiwiSaver account (but not the balance itself) – from each of the last two years. The total of these is your combined income for the purposes of working out your PIR. [This information is intended to be used a guide only and does not constitute tax advice.]
Unless you have a substantial amount of savings in PIE accounts, it is likely that your taxable income alone will be a good indication of your PIR.
It is important to note that, if each of your last 2 income years gives you a different PIR, then the lower PIR will apply.
How can I find out my current registered PIR?
If you are an existing KiwiSaver member, your KiwiSaver provider can advise you of the PIR they have registered for you. [Your registered PIR should also be on the statements and annual tax certificate you receive from your KiwiSaver provider.]
Your KiwiSaver provider should ask you to confirm your PIR on an annual basis. This is a good opportunity to review your PIR. It is your responsibility to keep your KiwiSaver provider informed of your correct PIR to ensure you are paying the right amount of tax on your investment income, and avoid the consequences of having the wrong rate.
This video is intended to be used as a guide only and does not constitute tax advice. Please contact an independent tax adviser to seek advice specific to your circumstances. Find out more at the Inland Revenue website: www.ird.govt.nz/toii/pir/workout/