PIE fund or direct shares: which is better for tax?

There are two ways a New Zealand investor usually gets exposure to overseas shares: buy a New Zealand fund that holds them for you (a PIE), or buy the shares directly through a broker like Hatch, Sharesies or Interactive Brokers. The investments can look almost identical. The tax treatment isn't, and the gap can be worth hundreds of dollars a year. For most people, PIE vs direct investing comes down to two things: what rate your gains are taxed at, and how much paperwork you're willing to do.

Both routes still run into the FIF tax rules. The difference is who does the work and what rate applies.

The two routes at a glance

• PIE (Portfolio Investment Entity): a New Zealand fund does the FIF calculation inside the fund and taxes your share at your prescribed investor rate (PIR), which for individuals tops out at 28%. You don't file anything for it.
• Direct: you own the shares yourself, apply the FIF rules on your IR3, and the income is taxed at your marginal rate, which goes up to 39%. More control, more admin.

How a PIE is taxed

When you invest in a multi-rate PIE that holds international shares, the fund works out its FIF income (almost always using the Fair Dividend Rate method, s EX 52 of the Income Tax Act 2007) and attributes your slice to you. That income is taxed at your PIR.

Your PIR depends on your income over the previous two years. For individuals there are three rates as at the 2025-26 year, and you qualify for a lower one if you were under both thresholds in either of those years:

PIR	You qualify if, in either of the last two years...
10.5%	your taxable income was $15,600 or less, and taxable plus PIE income was $53,500 or less
17.5%	your taxable income was $53,500 or less, and taxable plus PIE income was $78,100 or less
28%	neither of the above applied

The top rate is capped at 28% no matter how much you earn. So if your salary puts you on a 33% or 39% marginal tax rate, your foreign-share income inside a PIE is still only taxed at 28%.

💡 Good to know: since the 2020-21 tax year, IRD squares up your PIE income in your end-of-year assessment. If your PIR was too low you pay the difference; if it was too high you get refunded. But the correct PIR is still capped at 28%, so a high earner never pays more than that on PIE income.

The catch on the rate is that you have to give the fund your IRD number and the right PIR. Leave it blank and the fund applies the default 28%, which might be higher than you should be paying.

Multi-rate or listed: not all PIEs work the same

Most PIE funds you'd buy for overseas exposure (Kernel, Simplicity, the Foundation Series funds on InvestNow, Sharesies' managed funds) are multi-rate PIEs. The fund attributes income to each investor and taxes it at that investor's own PIR, so someone on 10.5% or 17.5% really does pay 10.5% or 17.5%.

Smartshares ETFs, such as the US 500 fund (USF), are listed PIEs, because they trade on the NZX. A listed PIE can't collect a PIR from every shareholder on an exchange, so it pays tax at a flat 28% inside the fund. If your rate is lower, you can choose to include the dividends in your tax return and use the imputation credits attached to them, which claws part of the difference back. It works, but it's clumsier than a multi-rate PIE that simply applies your rate in the first place. If you're on 28% anyway, the distinction mostly disappears.

How direct investing is taxed

Hold the shares directly and you become responsible for the FIF maths yourself. You work out your FIF income each year, choose between the FDR and CV methods, and declare the result on your IR3. It's then taxed at your marginal rate alongside your salary.

That's more effort, but it buys you two things a PIE can't:

• Method choice. You can use FDR one year and elect CV the next, picking whichever gives the lower income. A PIE is locked into FDR.
• The de minimis exemption. If the total cost of your foreign shares stayed under NZ$50,000 all year, the FIF rules don't apply to you at all, and you just return the actual dividends. A PIE gives you no such exemption.

Dividends need one more step when you hold directly. The US withholds 15% on dividends paid to New Zealand residents under the tax treaty (your broker's W-8BEN form is what secures that rate), and you can generally claim that withholding as a foreign tax credit against the NZ tax on your FIF income. Inside a PIE, the fund claims those credits itself and the benefit flows through to you without any action on your part.

A worked example

Say you hold $100,000 of international shares in a year where the market rises, so FDR is the method in play either way. FDR income is 5% of $100,000, or $5,000, the same figure whether you hold directly or through a PIE, because the PIE also uses FDR.

Here's the tax on that $5,000 of FIF income at each marginal rate:

Your marginal rate	Direct: tax on $5,000 FIF income	PIE: tax at 28% PIR	You save with the PIE
33%	$1,650	$1,400	$250
39%	$1,950	$1,400	$550

The higher your marginal rate, the more the 28% cap is worth. For a top-rate earner that's $550 a year on a $100k holding, every year, with no tax return to file for it.

When direct investing wins

The PIE isn't automatically ahead. Two common situations flip it:

A flat or down year. Because a direct investor can elect CV, a year where your shares fall flat or drop can mean little or no FIF income, sometimes zero. The PIE is stuck applying FDR's flat 5%, so it taxes you on a gain you didn't make. Over a run of weak years, that method choice can outweigh the rate difference.

A small portfolio. If your foreign shares cost under $50,000 all year, holding directly keeps you under the de minimis threshold, so you skip FIF entirely and only pay tax on the dividends you actually received, often well under 5% of value. The same money in a PIE is taxed on FDR income from the first dollar.

⚠️ Watch out: the headline "28% cap" only helps if your marginal rate is above 28%. On a 10.5% or 17.5% rate, you can sometimes do better holding directly, and a PIR set too high just means waiting for IRD to refund the difference after year-end.

Where the break-even actually sits

The worked example above covers a single rising year. Stretch the comparison over a full market cycle and it changes shape, because the routes also part ways in what happens when markets fall.

A PIE applies FDR every year, so its tax drag is steady: 5% of opening value taxed at 28%, which works out to 1.4% of your balance, in good years and bad. A direct investor on a 33% rate pays more in rising years (5% at 33% is 1.65%) but can elect CV in a year where the portfolio fell, and pay nothing.

That trade has a break-even you can put numbers on:

• On a 33% marginal rate, the PIE saves you 0.25% a year while markets rise. One CV year at zero saves the direct investor the full 1.4% the PIE would still have paid. So a single down year cancels about five and a half years of PIE advantage, and direct holding wins on tax if more than roughly one year in seven is flat or down.
• On a 39% rate, the PIE saves 0.55% a year and one CV year claws back 1.4%, so a down year covers about two and a half rising years. Direct wins on tax if more than about two years in seven are down.

For context, the US market has finished a calendar year in the red roughly one year in four over the past century. On those odds, a 33% earner often comes out ahead holding directly on tax alone, and for a 39% earner it's close to a coin flip.

Two caveats. CV only reaches zero when your total return for the year, dividends included, was actually negative; a flat year with a 2% dividend still produces some CV income. And the arithmetic assumes you make the CV election every time it helps, which is easy to overlook when filing by hand. The calculator runs both methods and picks the lower one, which is the whole point of it.

The platforms, mapped to their tax treatment

The same S&P 500 exposure is sold in New Zealand in at least four different tax wrappers, and the platform's branding won't tell you which one you're getting. Here's the map:

Where you buy	What you're actually holding	How it's taxed
Kernel, Simplicity, Foundation Series funds on InvestNow, Sharesies managed funds	Multi-rate PIE funds	Fund runs FDR internally; you pay your PIR, capped at 28%; nothing on your IR3
Smartshares ETFs on the NZX (e.g. USF)	Listed PIEs	Flat 28% inside the fund; lower-rate investors can reclaim some via imputation credits
Hatch, Sharesies (US shares), Interactive Brokers, Tiger	Foreign shares and ETFs held directly	FIF rules on your IR3 at your marginal rate; the $50k de minimis and FDR/CV choice apply
Offshore-domiciled funds on NZ platforms (e.g. Australian unit trusts on InvestNow)	A foreign fund, despite the NZ storefront	A FIF interest, treated the same as direct holdings

Two of those rows catch people out.

Sharesies straddles the line. Its managed funds are PIEs, while the US shares side of the same app is direct FIF territory. Plenty of people hold both in one account without realising the two halves are taxed under different regimes. If you've bought US shares there and your total cost is over $50,000, that side belongs in a FIF calculation; the managed-fund side doesn't.

A New Zealand platform doesn't make it a PIE. What matters is where the fund itself is domiciled. An Australian-domiciled unit trust bought through InvestNow is a foreign fund, so it's a FIF interest even though you bought it from a NZ website in NZ dollars. Check the fund's product disclosure statement: if it says "portfolio investment entity", the fund handles the tax; if it's an offshore vehicle, you do.

Tax isn't the only line in this comparison. Management fees on the PIE side and brokerage plus FX spreads on the direct side routinely differ by a few tenths of a percent a year, which is the same order of magnitude as the tax gap in the worked example. A cheap fund with a slightly worse tax treatment can still beat an expensive one with a better one.

Holding through a trust: the 39% angle

Since 1 April 2024 the trustee tax rate is 39% (trusts with $10,000 or less of trustee income stay at 33%). That change made this comparison a lot sharper for family trusts, for two reasons.

First, trusts don't get the $50,000 de minimis exemption. A trust holding foreign shares directly is in the FIF rules from the first dollar, so there's no small-portfolio escape hatch.

Second, the rate gap is now the widest it can be. A trust holding directly pays FDR income at 39%, a drag of about 1.95% of the portfolio's opening value each rising year. The same money in a multi-rate PIE is taxed at a maximum PIR of 28%, a drag of 1.4%. Trustees can elect the 28% rate and have it treated as a final tax. On a $500,000 portfolio that difference is roughly $2,750 a year.

The down-year arithmetic from the break-even section still applies, and at 39% the CV election is worth the most, so a trust holding directly through the calculator's FDR/CV comparison isn't automatically worse off. But trusts also have moving parts this guide doesn't cover, like distributing income to beneficiaries at their own rates, so treat the PIE-vs-direct question inside a trust as one to run past an accountant rather than settle on tax drag alone.

So which should you choose?

As a rough guide:

• A PIE tends to win if you're on a 33% or 39% marginal rate, your portfolio is well over $50k, and you'd rather not deal with FIF calculations at all.
• Direct tends to win if you're under the $50k de minimis, you're on a lower marginal rate, or you want the flexibility to switch between FDR and CV in down years.
• For trusts, the 39% trustee rate makes the PIE's 28% cap unusually valuable, but take advice before restructuring.

If you already hold directly, the calculator works out your FIF income both ways so you can see what you'd actually owe.

Key takeaways

• A PIE caps tax on your foreign-share income at a 28% PIR and handles FIF for you; direct holdings are taxed at your marginal rate, up to 39%.
• The 28% cap is most valuable to 33% and 39% earners, worth a few hundred dollars a year on a six-figure holding.
• Direct investing keeps method choice (FDR vs CV) and the $50k de minimis exemption, both of which a PIE loses.
• Over a full cycle the CV option matters: if more than about one year in seven is a down year, a 33% earner can come out ahead holding directly.
• A fund bought on a NZ platform isn't necessarily a PIE, and Smartshares' listed ETFs pay a flat 28% inside the fund rather than your PIR.
• For trusts on the 39% trustee rate, a PIE's 28% cap saves about 0.55% of the portfolio each rising year, but trusts get no de minimis either way.

Common questions

Do I pay FIF tax on PIE funds?

Not personally. The fund applies the FIF rules to its own overseas holdings, almost always using FDR, and taxes your attributed share at your PIR. If your PIR is correct, that's a final tax and nothing about the fund goes on your IR3.

What PIR should I use?

10.5% if, in either of the last two income years, your taxable income was $15,600 or less and your taxable plus PIE income was $53,500 or less; 17.5% if those figures were $53,500 and $78,100 or less; otherwise 28%. If you don't supply a PIR at all, the fund uses 28% by default.

Is a PIE fund better than buying US shares directly?

It depends on your rate and your portfolio size. On a 33% or 39% marginal rate with well over $50,000 invested, the PIE's 28% cap usually wins in rising markets. Under the $50,000 de minimis, or in years when markets fall and the CV method produces little or no income, holding directly usually wins.

Are Smartshares ETFs taxed the same as Kernel or InvestNow funds?

Not quite. Kernel and the InvestNow Foundation Series funds are multi-rate PIEs that tax you at your own PIR, including the lower 10.5% and 17.5% rates. Smartshares ETFs are listed PIEs, which pay a flat 28% inside the fund; lower-rate investors can recover part of the difference by including the dividends and their imputation credits in a tax return.

Does the $50,000 FIF threshold apply to PIE funds?

No. The de minimis threshold only matters for holdings you own directly. Money inside a PIE is taxed on its FDR income from the first dollar, which is why small direct portfolios under the threshold, paying tax only on actual dividends, can beat a PIE. (Budget 2026 has proposed lifting the threshold to $100,000 from 2026/27, which would widen that zone, but it isn't law yet.)

Should a family trust hold overseas shares through a PIE?

The tax case is stronger than it used to be: since April 2024 trustee income is taxed at 39%, while a PIE caps the rate at a 28% PIR that trustees can elect as final. That's about 0.55% of the portfolio per rising year. Trusts get no de minimis exemption either way, but distributions to beneficiaries and the trust's wider circumstances can change the answer, so take advice first.

Sources: IRD prescribed investor rate guidance (IR861), the FIF rules in subpart EX of the Income Tax Act 2007, and the PIE rules in subpart HM of the same Act. Rates and thresholds are current for the 2025-26 tax year and can change. This is general information, not tax advice.