I wanted to share a quick but important insight from a recent experience with a couple I’ve been working with — something that might be relevant to many of you investing as a couple or using a PIE (Portfolio Investment Entity).
The Situation
One spouse was on the lowest tax rate of 10.5%, while the other was on the highest — 39%. They had a PIE investment (similar to managed funds) and had heard that if they made the lower-taxed spouse the "primary holder," the entire investment could be taxed at her lower rate.
It sounds like a smart move — but here’s the catch: that strategy doesn’t actually work.
What the Rules Say
When two people with different tax rates jointly invest in a PIE, you’re legally required to declare the highest Prescribed Investor Rate (PIR) between you. In this case, the husband’s 39% rate was the benchmark.
However, PIEs cap tax at 28%, which is still lower than 39% — so the PIE structure can still be beneficial. But here’s where it gets tricky:
- If they had incorrectly selected her 10.5% PIR, the IRD would still reassess and tax the husband’s share at 39%.
- Worse, they could be hit with use-of-money interest and potentially penalties for under-reporting.
Lessons Learned
- ✅ When investing jointly in a PIE, always use the highest PIR.
- ✅ Don’t rely on myths or hearsay — the wrong PIR can cost you more than you save.
- ✅ PIEs are still useful — capping your tax at 28% even if you're on a higher rate.
- ❌ Avoid “gaming the system” by selecting a lower PIR and hoping to pay the difference later — it doesn’t work and could lead to IRD trouble.
Real People, Real Consequences
I’ve seen cases where investors thought they’d save money now and “settle up” later. But they didn’t realise they’d be charged interest and possibly even penalties by the IRD. That’s money straight out of your pocket — and completely avoidable with the right advice upfront.
💬 Want to make sure your investment tax settings are correct?
I’m always here to help you make smarter, safer financial decisions.
👉 Reply to this email or give me a call, and let’s review your PIR together.
Here’s to growing your wealth without unnecessary tax surprises.
Warm regards,
Kara Northcott
Helping you build financial freedom, one smart decision at a time.
027 666 6784
📩 kara@financialconsultant.co.nz
🌐 kara-northcott-financial-consultant.kit.com
