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HM 47: Calculation of tax liability or tax credit of multi-rate PIEs
or “Working out how much tax a multi-rate PIE owes or is owed”
You could also call this:

“Changes to investor payments or shares when a PIE pays tax”

When a multi-rate PIE (Portfolio Investment Entity) pays tax or gets a tax credit for an investor, they need to adjust the investor’s interest to match the tax rate. The PIE can choose to change the investor’s interest in an investor class, change how much they distribute to the investor, or change how much the investor needs to pay for the PIE’s tax.

The PIE can let the investor choose which way they want to adjust. They need to make these adjustments within certain time limits, depending on how they calculate their taxes. If they use the quarterly option, they have 2 months after the quarter ends. For the exit option, it’s 2 months after the tax year ends. For the provisional tax option, it’s 3 months after the income year ends.

If the PIE needs more time, they can ask the Commissioner for an extension. This might happen if there’s a good reason for the delay.

If the PIE makes a mistake in calculating and paying its income tax for investors in a tax year, they can fix it within 1 month of finding the error. In the year the error is made, they can make as many adjustments as needed. In the following year, they can make adjustments up to $2000 or 5% of the PIE’s income tax for the previous year, whichever is more.

When the PIE fixes an error from the previous year, they need to tell the Commissioner. They must provide specific information about the error and the adjustment.

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Next up: HM 49: Tax credits: when sections HM 50 to HM 55 apply

or “When tax credit rules apply to multi-rate PIEs and their investors”
Next

Part H Taxation of certain entities
Portfolio investment entities: Adjusting investors’ interests

HM 48Adjustments to investor interests or to distributions

  1. When a multi-rate PIE pays a tax liability or receives a tax credit under section LS 1 (Tax credits for multi-rate PIEs) in relation to an investor, it must make an adjustment to the investor interest of the investor to reflect the rate applying under section HM 60 or HM 61. The PIE may choose to adjust—

  2. the investor interest of the investor in an investor class; or
    1. the amount of a distribution paid to the investor; or
      1. the amount of a payment required from the investor to satisfy the PIE's tax liability.

        1. The PIE may offer the choice made under subsection (1) to the investor.

        2. An adjustment under subsection (1)(a) must be made—

        3. for the quarterly calculation option, within 2 months of the end of the quarter; or
          1. for the exit calculation option, within 2 months of the end of the tax year; or
            1. for the provisional tax calculation option, within 3 months of the end of the income year.

              1. On application by a multi-rate PIE, the Commissioner may extend a time limit imposed under subsection (3) if it is reasonable in the circumstances.

              2. When a multi-rate PIE, through an error, does not calculate and pay its income tax liability in relation to its investors for a tax year correctly, the PIE may make an adjustment under subsection (1)(c) within 1 month of the discovery of the error.

              3. For the purposes of subsection (5),—

              4. the adjustment may be made in the tax year in which the error is made (year 1) without any limit on the total amount of adjustments for errors:
                1. the adjustment may be made in the tax year following that in which the error is made (year 2), but the total of all adjustments for errors made in year 2 relating to an error made in year 1 must be no more than the greater of—
                  1. $2000; or
                    1. 5% of the income tax liability of the PIE for year 1.

                    2. An adjustment that meets the requirements of subsections (5) and (6) is treated as made on the due date for the amount referred to in section HM 41(3) and calculated under sections HM 42 to HM 44B.

                    3. Following the discovery of an error to which subsection (6)(b) applies, the PIE must notify the Commissioner of the error at the time of making the adjustment, including in their notification—

                    4. the information in schedule 6, table 1, rows 1 to 8, 10, 12, 13, 16, 21, and 22 of the Tax Administration Act 1994; and
                      1. the adjustment to the item referred to in schedule 6, table 1, row 9 of that Act.

                        Compare
                        • s HL 7
                        Notes
                        • Section HM 48: inserted, on (applying for the 2010–11 and later income years), by section 292(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                        • Section HM 48 heading: amended (with effect on 1 April 2010), on (applying for the 2010–11 and later income years), by section 99(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
                        • Section HM 48(1): amended (with effect on 1 April 2010), on (applying for the 2010–11 and later income years), by section 99(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
                        • Section HM 48(1)(a): amended (with effect on 1 April 2010), on (applying for the 2010–11 and later income years), by section 99(3) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
                        • Section HM 48(5) heading: inserted, on , by section 131(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
                        • Section HM 48(5): inserted, on , by section 131(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
                        • Section HM 48(6) heading: inserted, on , by section 131(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
                        • Section HM 48(6): inserted, on , by section 131(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
                        • Section HM 48(7) heading: inserted, on , by section 131(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
                        • Section HM 48(7): inserted, on , by section 131(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
                        • Section HM 48(8) heading: inserted, on , by section 131(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
                        • Section HM 48(8): inserted, on , by section 131(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
                        • Section HM 48 list of defined terms apply: inserted, on , by section 74 of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
                        • Section HM 48 list of defined terms income tax liability: inserted, on , by section 131(2) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).
                        • Section HM 48 list of defined terms prescribed investor rate: repealed (with effect on 1 April 2010), on , by section 126 of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).