Changes to portfolio investment entity tax rates align with the 2008 personal tax rate structure so investors are not disadvantaged by investing in a PIE.

Sections CX 56, HM 56 to HM 58, YA 1 and schedule 6, table 1 of the Income Tax Act 2007

Changes have been made to the tax rates on portfolio investment entities (PIEs) and the income thresholds so they align with the new personal tax rate structure enacted in 2008. This is to ensure that investors are not disadvantaged if they invest in a PIE rather than investing directly. This is particularly important as the tax on PIEs is a final tax.

Background

Previously, the PIE tax rates were as follows:

Taxable income

Taxable + PIE income

PIE tax rate

$0 - $38,000

$0 - $60,000

19.5%

$38,001+

Any

30%

Any

$60,001 and over

30%

Key features

The new rates contained in new schedule 6, table 1 are as follows:

Taxable income

Taxable + PIE income

PIE tax rate

$0 - $14,000

$0 - $48,000

12.5%

$0 - $14,000

$48,001 - $70,000

21%

$14,001 - $48,000

$0 - $70,000

21%

$48,001 and over

Any

30%

Any

$70,001 and over

30%

Taxpayers who were previously on the 19.5% PIE tax rate will be shifted to 21% from 1 April 2010. Those taxpayers who have earned no more than $14,000 of taxable income and no more than $48,000 of combined taxable and PIE income in the past two years may elect the 12.5% rate from this date.

Consequential amendments reflecting the rate changes have been made to sections CX 56, HM 56 to HM 58 and the definition of "prescribed investor rate" under section YA 1.

Application date

The amendments apply from 1 April 2010.