Next Friday, October 1, 2010, the rates on income tax will reduce. The corresponding PIR rates are falling at the same time.
To reflect this change, we have updated our Term PIE, and Cash PIE pages with the new "pre-tax" equivalent rates that can be used to compare with ordinary term deposit rates.
Income tax rates for most taxpayers change as follows:
- the 21% rate falls to 17.5%
- the 33% rate falls to 30%
- the 38% rate falls to 33%
The PIR falls from 30% to 28%.
The effect of these changes is to reduce the benefits of tax-related structures. Consequently the benefits of PIEs are reduced.
But there are still some benefits, and depending on your situation, worthwhile gains can be had. We have also added the new lower tax rates to our Deposit Calculator, where you can compare PIE returns with ordinary term deposit returns. (The old rates are still available in the Calculator should you need them.)
Apart from the difference in rates, there is also a valuable difference in the way PIE's are treated. In a normal TD, you have resident withholding tax deducted every time interest is credited to your account. This limits the benefits of compounding. But in a PIE, the PIR tax is deducted either at maturity or March 31. In some cases this can be much less frequently, and so "interest-on-interest" builds up a bit faster. Check the "Show Transactions" button in our Deposit Calculator to see how this benefit may help you.
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