Changes to PIE tax regime

The Government's latest proposals to bring investment and income tax rates into line will not erode the attractiveness of cash portfolio investment entities (PIE), experts say.

Wednesday, July 8th 2009, 5:19AM

by Sonia Speedy

Revenue Minister Peter Dunne said that the Government is moving to align resident withholding tax (RWT) rates on interest and PIE rates with the recent changes to personal income tax rates and the 30% company tax rate.

He says the changes take effect from April 2010 and being announced now to give financial institutions as much time as possible to start preparing for them.

Marac retail investment manager Andrew Ford says the changes do not alter the fact PIE rates offer investors on the top tax rates significantly enhanced after-tax returns.

"Mainly because they're not changing anything relative between RWT and the PIE rates so they'll still get that significantly enhanced return which makes PIE investments very compelling for investors in that top tax bracket," he says.

Paul Mersi, PricewaterhouseCoopers financial services partner, says: "The changes are totally logical and consistent with the new personal tax rates; it's just that they're late, so that means some people in this interim year are advantaged or disadvantaged by the lateness."

Mersi says it could be argued the changes should have come in from April this year when personal tax rates were changed, however, there was not enough lead in time for operators. He adds that anyone in a cash PIE at the moment on the 19.5% rate is currently being either over or under taxed as a result.

"Under the new tax rates there are some people in that position whose tax rate will drop down to 12.5% - but probably not that many. Most other people face a tax rate of 21%," Mersi says.

"They will be worse off from April 2010 than they are at the moment, but it's really just aligning the PIE rate with the personal rate, hence they're getting an advantage now that they shouldn't really have been getting."

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