Tax changes for managed funds

Late last year, legislation was passed to change the way certain investments are to be taxed. The reason for the changes is to create a more level playing field for investors who invest directly and through managed funds. The PIE regime benefits investors on a 19.5% marginal tax rate, as this rate will be applied to fund returns instead of 33% as at present. Taxpayers on a 39% marginal tax rate will continue to enjoy tax on their funds at only 33%. Those that are on a 33% tax rate remain neutral.

Tax benefits for New Zealand and Australian shares within PIE

The PIE regime relates to capital gains derived from New Zealand and some Australian shares, which will no longer be subject to tax. This is a big improvement on the 33% tax rate that is currently applied.

New tax basis for overseas shares

The new tax regime also relates to funds holding an offshore investment in a PIE. These funds will pay tax on a deemed "fair dividend rate" (FDR) of 5% of the value of investments at the start of the tax year. Applying tax to 5% of the fund value at year commencement represents a significant change in the taxation basis from the current 33% tax on the capital gains of offshore holdings.

The benefits for clients investing in PIE compliant managed funds are potentially significant; however, income tax depends on each individual person's own circumstances and professional advice should be sought.

Disclaimer: This article is a brief summary of some important matters for consideration in relation to the PIE tax regime for managed funds. It is not intended to constitute detailed advice. You should seek professional advice before making decisions regarding tax in relation to your investments. Asteron takes no responsibility for any decisions based on the contents of this article.

Daniel Martin
Investment Product Adviser
Asteron