The PIR Tax Rate Guide — Prescribed Investor Rates Explained

The PIR Tax Rate Guide — Prescribed Investor Rates Explained

A prescribed investor rate is the rate at which your managed fund or KiwiSaver scheme pays tax on the income it earns for you. You don’t calculate it on a form, and you don’t give it to Inland Revenue. You work it out yourself, tell the fund, and the fund withholds on that basis from then on.

That arrangement puts an unusual amount of weight on a small piece of self-assessment. Nobody validates the figure you supply. If it is too high, you overpay quietly for as long as it stands. If it is too low, the difference catches up with you at the end of the tax year.

This guide follows Inland Revenue’s calculation order, then looks at what each type of mistake costs.

How We Researched This Guide

The bands, thresholds and income-year rules below are taken directly from Inland Revenue's prescribed investor rate page, cross-checked against its pages on PIE income for New Zealand residents and its individual tax rates. We deliberately haven’t rounded them, because the whole calculation depends on the exact figures.

One point is worth making before the steps. The two income tests below are not variations of the same idea — they measure different things, and a person can pass one and fail the other. Reading them as a single income limit is the most common way this calculation goes wrong.

The Quick Summary (60-Second Version)

Here is the shape of it before the detail.

• The PIRs for New Zealand tax resident individuals are 10.5%, 17.5% and 28%.
• Multi-rate PIE income is capped at 28%, so nobody is taxed above that.
• The rate depends on your income in either of the two income years before the tax year you are working out.
• One test looks only at your taxable income; the other adds your attributed PIE income to it.
• If you do not give your PIE a PIR, the default rate of 28% is applied.
• You must also give the PIE your IRD number — a new investment has six weeks to supply it, or the account is closed.

What a Prescribed Investor Rate Actually Is

A multi-rate portfolio investment entity is taxed as an entity, but not at a single company-style rate. Instead, the fund allocates its income to each investor in proportion to their share, then applies that investor's own rate. The rate you supply is how the fund knows what to apply to your slice.

Resident withholding tax is not paid on multi-rate PIE income. The PIR is the mechanism, and RWT does not sit on top of it. That is also why the rate has to be right at the point of supply rather than corrected later — the fund has no other information about you.

Working Out Your PIR, Step by Step

Work through these in order. Each step narrows the answer, and people go wrong by skipping to the bands.

Step one — find the right two income years

The rate is not based on what you earn this year. It is based on your income in either of the two income years before the relevant tax year. To work out the PIR for the tax year ending 31 March 2027, for example, you use the tax years ending 31 March 2025 and 31 March 2026.

That lag matters in both directions. A recent pay rise doesn’t lift your PIR yet, and a quiet year two years ago can keep your rate down. If your income has moved a long way, the two-year look-back is why the rate on your account may look out of step with your situation.

Step two — run both tests and take the lower band you qualify for

There are two separate calculations, and the rate is set by the one that puts you in the lowest band you are eligible for. The first uses your taxable income alone. The second adds your attributed PIE income to it.

The 10.5% band requires that in either of those two years your taxable income was $15,600 or less, and your taxable income plus attributed PIE income was $53,500 or less.

The 17.5% band requires that, in either of those two years, your taxable income was $53,500 or less, and your taxable income plus PIE income was $78,100 or less.

The 28% band applies where, in each of those two years, your taxable income was $53,501 or more, or your taxable income plus PIE income was $78,101 or more.

Note the asymmetry built into that table, because it is easy to read past. The two lower bands are satisfied by meeting the test in either of the two years — one qualifying year is enough. The 28% band is specified for each of those years. A single low-income year can therefore hold your rate below the top band.

Step three — check that the rate you want is open to you

You can only choose 10.5% or 17.5% if you are eligible for them. The rate is not a preference to select, and choosing a band you do not meet is exactly the error that produces a tax bill later. There is also no PIR of 0% for ordinary investors — an exception exists only for individuals with a four-year temporary tax exemption investing in a zero-rate PIE.

Step four — tell the fund, and give it your IRD number

The rate only takes effect once the fund has it. The same applies to your IRD number: you must give it to the PIE, and for a new investment you have six weeks to provide it, after which the account is closed. If no PIR is supplied at all, the fund applies the default rate of 28%.

The Cost of Getting It Wrong

If you provide the wrong PIR, you may owe more tax at the end of the year. That is the risk people think about, and it is the reason the rate should not be guessed upward "to be safe" — an unnecessarily high rate is not a protective choice, because you are not credited for having overpaid at an effective rate you were never entitled to use.

The opposite error is quieter. Supplying no rate at all defaults the decision to 28%. Be blunt: 28% is not a middle-of-the-road figure sitting neutrally between the other two. It is the highest rate available to most individual investors, and it is applied to your investment return whether or not it matches your circumstances.

For someone whose correct rate is 10.5% or 17.5%, the gap between the default and the right answer is the difference between income that compounds for you and income that does not.

Why Two Years, and Not One

The two-year look-back is a deliberate design choice, not an oversight. It keeps the rate stable through a single unusual year — a redundancy payout, a year of study, a period out of work — so that a temporary dip in income does not immediately reshape how your fund is taxed.

The cost of that stability is lag. Someone whose income has risen sharply will keep a lower rate for a while, and someone whose income has fallen will keep a higher one. Only one direction hurts: lag that leaves you on too low a rate creates a liability, while lag that leaves you on too high a rate is money you never see.

Questions You Might Have

Can I leave the rate as the fund set it?

You can, but the fund has no basis for setting anything other than the default where you have given it nothing. Leaving the rate alone when your correct rate is 10.5% or 17.5% means paying 28% instead.

Does my PIR change how much tax I pay overall?

It changes how much tax is deducted on your PIE income during the year. Because the individual rates are 10.5%, 17.5% and 28%, a lower rate leaves more of the investment return in your account to compound.

Does PIE income affect Working for Families or my student loan?

PIE income from a retirement savings scheme such as KiwiSaver does not affect Working for Families or student loan entitlements. Other multi-rate PIE income does count, and you can adjust it in myIR or on an IR215 form.

What if I hold a listed fund rather than a managed fund?

A dividend from a listed PIE is treated differently from multi-rate PIE income. It must be included in your income tax return, and resident withholding tax rules apply — the PIR does not govern it.

Do I need to tell the fund every year?

The rate you supply stays in place until you change it, which is precisely why it can fall out of date. The rate depends on income in the two years before the relevant tax year, so it is worth revisiting whenever those years roll forward.

What Matters Most

The PIR calculation is short: two income years, two tests, three possible rates. It matters because nobody checks it for you. The fund applies what you give it, and a figure supplied years ago keeps operating long after it stopped being accurate.

If you take one action from this guide, log in, find the PIR attached to your fund or KiwiSaver scheme, and check it against your income for the two years before the current tax year. The default of 28% is where every unanswered question ends up, and it is the most expensive of the three answers.

Every band and threshold here is reproduced from Inland Revenue's published guidance rather than rounded for convenience. Where a figure could not be confirmed against that source, it is not stated.