How Are KiwiSaver and PIE Investments Taxed in New Zealand?

KiwiSaver and many managed funds in New Zealand are taxed as Portfolio Investment Entities, or PIEs. The key number for you is your Prescribed Investor Rate (PIR), which sets the rate your investment income is taxed at. Getting your PIR right matters — especially for higher earners — because the PIE rules can work differently from the tax on a salary.

What is a PIE and why does it matter?

A Portfolio Investment Entity is a type of investment fund with its own tax rules. Most KiwiSaver funds and many other managed funds are PIEs. Instead of you being taxed on the income at your personal income tax rate, the fund taxes your share of its income at your PIR. The practical upshot is that the rate on your investment earnings can be different — often lower — than the rate on your wages.

What is my Prescribed Investor Rate (PIR)?

Your PIR is based on your income over the previous couple of years, and there are a small number of set rates to choose from. It is your responsibility to give your provider the correct rate. If you are unsure, Inland Revenue and your KiwiSaver provider can help you confirm which rate applies to you, and the current income thresholds are published by IRD.

Why is the PIE tax cap relevant for higher earners?

The top PIR is capped at a rate that is lower than the highest personal income tax rate. For higher earners, that means investment income inside a PIE can be taxed at a lower rate than the same income would be if it were, for example, interest taxed at their personal rate. This is one reason PIE-style investments often come up when higher earners think about tax-efficient saving — though tax is only ever one part of an investment decision.

What happens if my PIR is wrong?

If your PIR is too low, you can end up with tax to square up; if it is too high, you may have paid more than you needed to. The rules around how over- and under-payments are handled have changed over time, so the simplest protection is to review your PIR when your income changes and make sure your provider has the right one. A quick check once a year is a sensible habit.

Does this change how I should invest?

Tax efficiency is worth understanding, but it should not drive an investment decision on its own. The fund type that suits your timeframe and your comfort with risk usually matters more to your long-term result than the tax rate. The two are best looked at together, which is where advice from a financial adviser — and a tax specialist for anything complex — can help. Our guide to choosing a KiwiSaver fund covers the investment side.

If you would like a hand making sense of how your KiwiSaver and other investments are taxed, our KiwiSaver page explains how we work with clients.

The information in this article is general information only and is not intended as financial, medical, health, tax or other advice. It does not take into account any individual’s personal situation or needs. You should consider obtaining professional advice from a financial adviser and/or tax specialist in relation to your own circumstances and before acting on this information.