Retiring to Oz from SA

[Big]

Hi, I'm a "first-time" blogger, ever, so please bear with me if my blogging etiquette is somewhat questionable. I'd really appreciate it if I could leverage from the experience of people who have already gone through the "mill" and who have done the thinking and made the "sums" i.e. investment returns in SA v. Oz, tax implications (Tax in country of residence) and, of course, the steadily worsening exchange rate.

I'll be retiring in SA , March 2015, after which the intention is for my wife and I to relocate (Contributory Parent Visa) to my daughter (Citizen) in Sydney. The question, obviously only if I decide to invest my total pension capital amount in an ILLA in SA, would be whether I should leave the capital amount here and just transfer the monthly pension amount or do I "draw-down" the full allowable 17.5% per annum and try and get the capital out as quickly as possible. Obviously these withdrawals will then have to be invested in Oz to generate a monthly pension there. Are the super-funds only for people who have contributed to them over years or can anyone invest a capital amount with them with the idea of generating a monthly pension?

Regards

[monsta]

Hey Big,

I am no financial guru... but from what I understand, you would be taxed when you take the money out of South Africa and taxed when you put it in to your super fund in Australia.

From what I understand a super fund is just an investment account that meats certain government criteria. There is a concep of a "superannuation guarantee" here. That means companies must put a certain percentage of your salary into a fund which meats certain critera (a.k.a. a super fund).

see: this link for what "superannuation guarantee" means.

see: this link for details on the tax implications of putting money into a super.

So, you may decide that bringing your pension money accross, which means paying tax in RSA, is better than dealing with a worsening exchange rate. But you wouldn't put it into a super fund. You would probably use some other sort of investment. That way you wouldn't be taxed twice...

Cheers

Edited April 20, 2014 by monsta

[Fish]

Congratulations on your first ever post !!!!

Can't help with the finance, but in case you don't know you have started what is commonly known across the internet as a "thread" or "discussion thread" and each comment made in your thread by various people is named a "post".

The term blogging is usually reserved for the act of someone updating their personal "blog". A blog is a website/webpage where you decide every topic and write about whatever you want and then random people read your blog and optionally make comments on what you have written. As opposed to a "forum", like saaustralia.org where everybody can choose a topic and start a thread about it and then everybody posts back and forth discussing the topic.

Thought I would write this as you said this is your first-time "ever" so you might appreciate a rough summary.

Edited April 20, 2014 by Fish

[Crossedover]

Welcome Big,

It sounds like you intend to do what my moms intends on doing in 2 years time.... I hope it is positive for all parents/grandparents.

I am just reassured that should the financial plans not go perfectly, it seems you are likely to be better looked after on an Auz pension than an SA one.... To me it's the way to go... Get your money out and buy property over in Aus.

[21yearsoutofrsa]

You have to be resident in Australia, or New Zealand for 10 years before you can get an Aussie government pension.

[patrice]

big - suggest u get professional advice

as i understand you can get your pension out virtually tax free - IF u formally emigrate - would be worth using an expert in these significant matters

there are many investment options here >

you may want to consider getting your free cash out now - even sell your house and rent until u move - would hedge against the exchange rate getting worse

good luck !!

[monsta]

Crossingover, I can't understand people who want to relocate from SA to expensive cities like Sydney. Its got to effectivly halve your pension (because your cost of living is 2x).

I know South Africa has its problems, but Sydney is seriously expensive.

As a rough guess Big would need R50 000pm to live anywhere near to the harbor. Even then he would be renting a small apartment and he wouldn't be flush with cash (holidays back to RSA might be out).

I always advise people to read people like u to see what people in each neighbourhood spend each month. Moving "out west", even just to Seven Hills, may save you lots of money each month.

Most people I speak to live in Sydney because they can bring in losts of money from overseas, they have grown up here or they come here because of the job opportunities.

Don't get caught up in, "my kids live in st leonards, so we need to live nearby". First, work out how much you would save by living in the "Hills" or out west and diriving to your kids 2x a week.

[RYLC]

Agreed monsta. This scenario can so easily turn into "Australia makes it too difficult for migrants because everything is so expensive" when in reality it is about the choices we make.

[Bronwyn&Co]

Hi Big - I also think it's a good idea to get professional advice but that's easier said than done because financial planners usually understand one system or the other, but not both. A few planners understand both systems but they may be on the expensive side.

I agree with the advice above re: Sydney being overpriced. Even moving an hour's drive out of the 'commutable' suburbs will save you a small fortune. But I'm sure you will look at that.

Anyone can start an Aussie Super, the money is used by your Super fund to buy shares. Personally I'd be cautious until you understand the rules (there are many). Try a high-interest savings account for a while first until you get your bearings. Your interest rate is higher in a SA bank but the Rand's depreciation is likely to negate that.

I'd venture to say move what you can into a solid dollar account. A rough guide is 1/3 cash, 1/3 property & 1/3 shares, but that's a nice-to-have and not easy for new immigrants.

I don't believe you will need to pay tax twice because SA & Aus have a reciprocal tax agreement. Your accountant in SA will/ should be able to give your accountant in Aus proof that you have already paid tax on your earnings.

I think in your case it's definitely worth getting professional advice. It is easy to slip up on little details. There are a couple of people on the Forum ( look in the money threads, I know Cashkows is one option), or PWC international also has branches in both countries.

Congratulations on all your plans & progress

[RYLC]

Bronwyn I think the reference to being taxed twice is not via income tax in each case so it won't be reciprocal between the two countries. The money would be taxed in RSA when withdrawn and then taxed at 15% when going into a super fund. It is one of the super fund rules that money is taxed when put in instead of when paid out so that pensioners can have paid their tax "upfront" when they were still working instead of when they are retired. So in RSA it will be income tax and in Australia it will be superannuation contributions tax. These two taxes are not equivalent so are not reciprocal. One is paid in your individual tax return and the other is paid by the super fund (on your behalf) in the super fund tax return.

My in laws retired here and they draw down the fully allowable annual amount each year. They have been here 5 years and cry each year about how the exchange rate has hit them. Also interest rates here have fallen from fairly good to poor so even though the invest the money each year it doesn't really keep up in value. Having said that though they still feel it better to get their money out as soon as physically possible. They moved from Zimbabwe in the 80's and have seen their friends getting a ridiculous "pension" paid from Zim to Canada which then stopped being sent out of the country due to currency constraints on non-residents. So no matter what the "cost" or losses, they still feel it better to get what money they can out of RSA.

They have managed financially because they live in regional South Australia where rents are cheap. They are also very frugal and walk a lot rather than use the car because they live in a small town. They are about 90 minutes away from us and we do all the commuting to see them.

Forgot to say you might get good advice from a South African tax accountant who now works in tax in Australia because they would understand both systems.

Edited April 21, 2014 by Crisplet

[Bronwyn&Co]

Sure Crisplet you may be right. I don't know about the contributions tax into Super, but it sounds like you've looked into it. I know there are rules about how much you may contribute, depending on your age. Each year the rules around Super are amended, and so it will be best to make 100% sure with a very reputable financial planner and then get a 2nd opinion too!

[RYLC]

Yes agreed

[Bob]

I took early retirement eight years ago in May 2006. I was 55, the earliest a person could get their hands on their superannuation in Australia to draw upon for an income stream to live off and pay the bills.

Before 2007, Australia had a Conservative government which encouraged Australian workers to save for their retirements in superannuation schemes and the like.

The Treasurer at the time, Peter Costello, introduced tax free status in 2005 for any resident 60 years old or older, putting money into a super fund, getting investment profits within a super fund and taking funds out of a super fund.

When I was 55, I was paying full income tax on my superannuation income stream, just as if I were still working at my old job. That all stopped 5 years later, when I turned 60. Since then I have not paid any tax on my superannuation, nor has my wife who also is turned 60 and has superannuation.

Your age may determine whether you are liable for any form of taxation while putting money into a superannuation fund in Australia.

Also, older Australians and residents are treated very well. I have a "Senior's Card" which gets me discounts on all sorts of items . . . . . 10% off my car, house, contents, caravan insurance, 10% discount off my house rates. 2/3rd discount off my Land Tax each year, $11 entry (instead of $17) into the local cinema, free bus, train and tram travel off peak (outside 7-9am and 3-7pm) and half price travel in peak times, and so on . . . . You qualify for a Seniors Card when you turn 60 and are not working full time any longer (half time or less)

My mate from PE is battling financially with having left his annuity in South Africa. It is locked in and he can only access the maximum 17% each year on his money. Four years ago, that money brought him $40 K a year. It is now down to $28 K a year . . . . a 30% fall in four years with the Rand depreciating against the Australian dollar.

You need 10 years' residency in Australia to qualify for the Australian Old Age Pension, which is pretty generous by overseas standards. My mate has another 6 years to go, but does qualify for the Commonwealth Seniors Health Card and Seniors Supplement after only two years residency, once he passed 65. This gives him and his wife free medical and public hospital and cheap prescriptions ($6 instead of $33 each).

Your daughter is living in the most expensive place in Australia to go to. Most Australians would try to avoid living in Sydney because of the expense, that's why foreigners get to go there mostly for work, and your daughter may consider shifting to another, cheaper part of Australia which is more affordable in future years, leaving you in Sydney perhaps, so think about where you want to go Down Under. Sydney is clearly not the best option.

Edited April 22, 2014 by Bob

[StevePorter]

HI Bronwyn & Co, plus others....

You are welcome to avail of the free consultation we offer, relative to what can be a complex area.

There can be opportunities and pitfalls with such a move, from a financial perspective, however a 10/15 minute phone conversation with us will often address most issues.

Regards

Steve Porter

cashkows.com

steve@cashkows.com

00 27 28 312 2764

[Gerhardk]

I do not have detailed knowledge of the parent visa but I think it is similar to a PR visa ( as opposed to work 457 type visa). If this is the case, at the time you enter Australia you will become a tax resident here (Australia) and taxed on worldwide income. As noted above, there is a double tax agreement between SA and Australia but it regulates double tax i.e. interest earned in SA taxed in SA and Australia. Where SA has interest threshold before interest earned is taxed, there is no such threshold in Australia and you are taxed from the first $ earned. But if you are a resident in Australia it does not matter anyway where it is earned.

If you formally emigrate, you may be able to get all your money out - refer to Cashkows.

Whether you should bring as much as you can / everything is anybody's guess what the exchange rate will do but based on the history it has been a one way decline. Arguably it may go down and certainly the expectation is it should decline against the USD (currently 92.5c for 1 USD). Investing in Australian property is not always the best choice either however you have to live somewhere so if you buy property here for primary residence purposes it would certainly put a strain on your pension (depending on size of pension).

As far as I am aware, you can also buy policies / annuities in life companies in Australia similar to SA - so the capital amount paid to acquire the policy will not be taxed when it is paid say monthly, only the growth will be taxed.

Edited May 6, 2014 by Gerhardk

[fouche's]

Hi Big

Any regular pension/RA payment on retirement from South Africa from a South African Fund is taxable in Australia - the tax should be payable only in Australia ito the double tax agreement (withdrawal before retirement and lumpsums often have different tax treatment). Superannuation in Australia is a great means of earning tax free income after 60 (generally if retired). The tax free threshold in Australia is about $22k for seniors (the income level that no tax is paid) so between a couple they can earn $40k before paying any tax. A retired couple earning $40k and with a Superannuation Fund in pension mode (tax free mode) would thus pay no tax. There are certain rules regarding transferring money from a South African Pension Fund to a Super Fund (within 6 months of migration etc) and rules/tests that must be met (otherwise tax is 45% in the Superfund).

Seek professional advice.

Regards Louis Fouche