Budget '07: Bigger slice of PIE will improve investor returns

The cut in the maximum tax rate for Portfolio Investment Entities (PIEs) contained in Thursday's Budget will improve returns from a wide range of savings and investment vehicles as well as from KiwiSaver, say industry experts.

The top tax rate on investment income earned on behalf of individuals who invest in savings vehicles that choose to use new PIE tax rules will, like the company tax rate, fall to 30 per cent from 33 per cent.

KiwiSaver funds are required to operate under the PIE rules coming into effect on October 1. Existing savings vehicles including listed property trusts too can opt for the new rules.

The tax reduction also applies to investments in life insurance products and widely held superannuation funds and group investment funds that are taxed as trusts. "Widely held" refers to those vehicles with more than 20 investors.

AMP general manager of savings and investment Roger Perry said the rate cut on these savings vehicles would enable returns to compound faster.

KPMG tax partner John Cantin said: "PIEs will retain an advantage as generally no further tax will be payable on distribution. These tax cuts are likely to incentivise New Zealanders to save and invest."