OK, thanks for clarifying what you mean by 'included' in this instance.
The 'excluded' income is most likely from the sale of shares or rights. It is 'excluded' because it is actually the fund selling assets and giving you your own capital back. That is why the IRD are not worried about it. IIRC, KFL have a a higher dividend yield than the sum of their constituent component companies yield that makes up the fund. So they periodically have to sell assets to top up their 'yield' to meet fund holder expectations..
Something is wrong with this picture. If the person you are talking about has only KFL income and is paying tax at the PIE rate of 28%, then that PIE rate is too high. They should contact the provider and get their PIE rate reduced.
Declaring PIE income on your IR3 tax return is a relatively recent change. It was put there to address exactly this kind of problem. It is a way of giving PIE fund holders money back if they were put on the wrong PIE tax rate for some reason. If the person you speak of was on the right PIE rate to start with, then there would be no need to file an IR3. The correct PIE tax would have been taken out at source.
However, from what you are saying, it seems all this person has to do is file an IR3 and put their PIE income into the PIE question (no. 36 in the IR3). That will allow the IRD to refund them their overpaid PIE tax in cash. That seems like the sensible solution, if I am following correctly the information you have given.
Forget all thoughts of declaring this income in Q14 so you can bring the PIE income into the same pool at this person's other income (you say they don't have other income anyway) and so try and use those excess imputation credits already paid in another way. This has no relevance in this case
SNOOPY