What is a prescribed investor rate?

A prescribed investor rate (PIR) is a tax rate that is applied to the income earned from investments in certain New Zealand collective investment vehicles such as managed funds, unit trusts, and superannuation schemes.

The PIR determines how much tax an investor should pay on their investment income, including dividends, interest, and capital gains. The rate is based on the investor's taxable income and is typically lower than the individual income tax rates.

There are three PIR options available for investors: 10.5%, 17.5%, and 28%. The applicable rate depends on the individual's annual taxable income. Generally, individuals with a lower taxable income are eligible for the lower PIR rates.

To calculate the PIR, an investor needs to estimate their taxable income for the upcoming tax year. They can use their last two years' taxable income information as a reference or consult with a tax advisor. The chosen PIR is then provided to the investment provider or fund manager for tax purposes.

It's essential for investors to select the correct PIR, as using a higher or lower rate than required can result in overpayment or underpayment of taxes. In case an investor's circumstances change during the tax year, such as a significant increase in income, they should notify their investment provider and update their PIR accordingly.

The PIR system aims to simplify the tax process for investors and align the tax liability more accurately based on their income level. It allows investors to enjoy the benefits of investing in collective investment vehicles while ensuring they meet their tax obligations appropriately.