PIEs give IRD tummy ache
With banks now aggressively marketing PIEs as good savings options, with their 30% tax rate, the department is now saying this may be opening up too big a gap for people to minimise their tax.
The PIE changes, along with lowering the company tax rate to 30%, mean “increased incentives and opportunities for individuals to structure their affairs in ways which reduce their exposure to higher personal marginal tax rates,” says the department's briefing to the incoming government.
There is also an anomaly in the PIE rules which mean investors can borrow money for PIE investment and claim the interest at 39%.
“By borrowing $1 million at a 10% interest rate and lending this through a PIE at a 10% rate, the individual might claim a deduction for $100,000, which would reduce the personal tax liability by $39,000.
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