A prescribed investor rate is the rate at which any income you make from a portfolio investment entity is taxed. If you're in a KiwiSaver scheme then you need to choose your PIR otherwise you may be taxed at the wrong rate.
Working out your prescribed investor rate
Depending on your circumstances, individual investors could choose a PIR of:
The key thing to look at is the taxable income you earned in each of the previous two years. This includes your wages, bonuses and other payments from employment, plus Government benefits, rental income, allowances, and any other sources of income that would be included in an income tax return.
Once you have your total taxable income, you will then need to add to this to your portfolio investment entities (PIE) income, which is the value of the taxable income from all of your PIE investments from each of the last two years. Kiwi Wealth KiwiSaver Scheme members can find this information on your annual member statement. The total of these is your combined income for the purposes of working out your PIR.
It is important to note that, if each of your last two income years gives you a different PIR, then the lower PIR will apply.
Inland Revenue’s website has a really useful page to help you make sure you’re using the correct PIR. For anyone working out their PIR for the first time, or confused about the process, it’s well worth checking out.
Getting it right
It is your responsibility to advise your KiwiSaver provider of the PIR that applies to your circumstances. It is important that you get your PIR right. Choosing an incorrect PIR can have significant consequences.
If you do not provide a PIR to your KiwiSaver provider, your provider will apply the maximum rate of 28%. If you pay too much PIE tax, you cannot claim the extra tax back but if you pay too little –by choosing a PIR that is too low – you will be required to file a tax return including your PIE income and you will be subject to tax on that income, at your marginal tax rate (which can exceed the top PIR of 28%). You could also be subject to penalties. So it is important you let your provider know the correct PIR for your investment income.
If you do not nominate a PIR on your application form, your provider will set it at the default rate of 28%.