What are imputation credits?
In New Zealand, when a company makes a profit, it pays tax on that profit before paying out dividends to shareholders. To prevent that same money from being taxed a second time when it reaches you, the company attaches "imputation credits" to the dividend. These credits represent the tax the company has already paid on New Zealand sourced profits.
How they work in a Kernel fund
Kernel funds are multi-rate PIEs (Portfolio Investment Entities). This means Kernel handles the tax for you based on your personal Prescribed Investor Rate (PIR).
Reducing your tax: When the fund receives New Zealand dividends with imputation credits, it holds those credits to "offset" the tax you owe on that income when you pay it. Tax is calculated at the investor level, not the fund level, as it is personal to you, therefore tax and imputation credits are not captured in the unit price.
Tax calculated and paid only on redemptions and year end: So that investors benefit from paying tax later rather than sooner, Kernel is an exit-filer. This means that the tax is calculated only on 31 March, or when units are sold (redemption). When the tax is calculated, the imputation credits are applied at that time.
Variability: Imputation credits are not a fixed amount. They depend on which companies the fund holds and how much tax those companies paid in a given year. Some companies might provide "fully imputed" dividends, while others might provide none.
Yearly changes: Because the companies in the fund and their tax positions change, the impact of these credits on your investment will vary each year.
Understanding your returns
When you see a "Dividend Yield" on a fund page, it is usually a gross figure. This is the total dividends received per unit in the fund in the last 12 months divided by the current unit price before any tax is taken out or credits are applied.
Your actual "take-home" or after-tax return will be different because:
It depends on your specific PIR (10.5%, 17.5%, or 28%).
It depends on the imputation credits the fund received that year.
It depends on the number of units you had each day of the year.
Where to find your information
Fund Pages: You can find the indicative dividend yield on each fund’s page on the Kernel website. This gives you an idea of the expected gross return from dividends, but it is not a guarantee. The dividends received form part of the unit price (they are an asset of the fund), and quarterly, Kernel decides (based on those dividends) how much to pay out as distributions.
Annual Tax Statement: Every year after the tax year ends (31 March), Kernel provides an Annual PIE Tax Statement in your account dashboard. This is usually available by late April or May. It shows exactly how much income you earned and the total tax credits (including imputation credits) applied to your account.
A quick reminder
Tax can be complex. While Kernel provides data to help you understand your investment, the final impact depends on your personal situation. If you have specific questions about your tax return, we recommend speaking with a tax professional.