A win for first-home buyers: Inland Revenue confirms PIEs can develop housing for sale

By Joe Sothcott, Phil Claridge & Alex Mitchell
 

Inland Revenue has quietly released a short draft Questions We’ve Been Asked (QWBA) that could have an outsized impact on New Zealand’s housing market.

The question posed is whether portfolio investment entities (PIEs) can derive eligible PIE income from developing land, subdividing it, and/or erecting buildings for sale.  In a welcome outcome, Inland Revenue’s draft answer is yes.

The conclusion clears the way for PIEs (including KiwiSaver funds) to invest in residential and commercial developments that are built to sell, not just to rent. Below, we look at how this issue arose, what the draft statement says, and why it’s good news for housing supply and investment flexibility.

How did we get here?

In 2024, Inland Revenue launched a policy consultation proposing to amend the PIE rules to specifically exclude income from land development activities as being eligible. The policy rationale included comment that Inland Revenue’s view was that such activity is not eligible under the existing law, so this would be a “clarification”.

We had concerns with this – with both the policy rationale and what was being implied about the existing law. From a policy perspective, we were concerned with limiting options to invest for PIEs by excluding land development. The PIE regime was designed to allow New Zealanders to invest and save for retirement through collective investment vehicles, without being disadvantaged relative to those with the means to invest directly. Many Kiwis have used (and continue to use) land as a savings vehicle. For some, this is owning a rental property. For others it is small-scale development – this is evident to anyone that has walked through the established suburbs of our major cities and seen the number of subdivided sections. We didn’t have a policy objection to this sort of activity (and commercial development) being open to PIEs.

A number of submitters, including Deloitte, asked Inland Revenue to pause and formally clarify its view of the current law before moving ahead with any legislative change. To its credit, Inland Revenue did this, resulting in the draft QWBA we now have.

The current draft statement

In a shift away from the view expressed in 2024, the Tax Counsel Office (TCO) has now issued the draft QWBA with a positive outcome for PIEs. The statement confirms that income from developing land, subdividing it, and/or erecting buildings for sale can be eligible PIE income under s HM 12 of the Income Tax Act 2007 (the Act).

In plain terms, the reasoning is straightforward. Section HM 12 allows PIEs to earn income from disposing of certain property. Section HM 11 says that property includes interests in land. Selling land (whether developed or not) is still selling land (and as such should fall within s HM 11). This was the view we took when we engaged with Inland Revenue on this in 2024.

This conclusion will not surprise those familiar with the Act. Sections CB 7, CB 9, CB 10, CB 11, CB 12, or CB 13 (the land provisions), which broadly apply to development and building activities, simply tax amounts derived “from disposing of land”. When the land provisions are read in conjunction with ss HM 11 and HM 12, it is difficult to imagine how Parliament could have made it any clearer that those activities were “eligible activities” for PIEs.

While in our view the answer seems clear, readers of the draft QWBA could walk away with the opposite impression. Although reaching the right conclusion, parts of the draft seem to argue the opposite. It considers a view that Parliament “intended” a distinction between active and passive investment (with land development not being “passive”), before conceding that this intention wouldn’t be persuasive to a New Zealand Court. We agree this distinction wouldn’t be persuasive to a New Zealand Court, because Parliament’s actual intention is best evidenced by the plain words of the Act.

In our view taxpayers would be best served if the QWBA focused its attention on the clear arguments for the conclusion.

Why this matters: real asset development

The confirmation that land development income can sit comfortably within the PIE regime has some important real‑world implications.

More homes, more options

Rather than being limited to “build-to-rent” or “buy-to-rent” land investment models, PIEs have the option to invest in projects including those that deliver housing at scale, potentially resulting in a material boost in supply. This could involve either a “build-to-rent-or-sell” or “build-to-sell” approach. The flexibility inherent in this mixed approach aligns far better with modern planning, design, and infrastructure goals.

Unlocking long‑term capital

The potential untapped capital is also material. Based on the Reserve Bank’s statistics, as at December 2025, KiwiSaver funds alone held around $143 billion worth of assets, with a further $91.6 billion in retail unit trusts (most of which are PIEs).

We are not suggesting that these PIEs should undertake development activities, but they now have certainty that this is an option -  the change is a capital unlock. If existing PIEs judge it appropriate and consistent with their wider strategy, they can now more easily do so without putting their PIE status at risk. They might do this directly, or via investment in a PIE operated by a manager specialising in development activity.  

Why this matters: a question of interpretation

Part of what makes this issue interesting is not just the outcome, but how Inland Revenue got there and what this might imply in other contexts. 

Inland Revenue’s initial view (which would have excluded land development income) relied heavily on an idea that PIEs were only ever meant to hold “passive” investments, not “active” ones. The problem with that view is that the words active and passive don’t appear anywhere in the PIE legislation.

Instead, the phrases appear primarily in background papers and reports prepared by officials when the PIE rules were first introduced and in relation to subsequent amendments (even then, the references are somewhat limited). While those materials might be helpful context with respect to officials’ intentions, New Zealand Courts have been clear they are an unreliable method of evidencing Parliamentary intent. The Court makes this plain in Commissioner of Inland Revenue v Roberts [2019] NZCA 654 (Roberts) stating:

The task of the Court is to interpret the words used in the statute, not paraphrases, and in particular imprecise paraphrases, used in discussion papers and officials’ reports. 

As Clearspan Property Assets Limited v Spark New Zealand Trading Limited [2017] NZHC 277 (Clearspan) notes, what the Courts should focus on is the wording of the statute: 

The rule of law must still stand for the proposition that it is the law that rules, not those who make the law or apply the law or interpret the law. The law is the text.

Put simply, when Courts interpret tax law, they start (and usually finish) with the statute itself. The text is paramount. It is fundamental that Courts do not read extra ideas into tax legislation, especially if those ideas conflict with the actual words of the legislation. While the QWBA ultimately concludes that the text is paramount, some of the discussion leading up to this could be clearer as to how Inland Revenue approaches statutory interpretation. This is of course fundamental to taxpayers and will form a key part of our submission.

Next steps

The deadline for submissions on the draft QWBA is 15 April 2026. 

If you have any questions about the draft statement or PIEs and land development, please contact your usual Deloitte advisor.