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Life Cover in Australia


Robbie_P
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Hi All,

I wanted to get an idea of the costs involved in getting Life Cover in Australia. Our family recently took out additional Life Cover with Discovery in order to get Vitality Benefits. The break down of the cover was as follows:

Life cover Wife : R 1,000,000

Severe Illness Wife : R 400,000

Life cover Myself : R 200,000

Severe Illness Myself : R 400,000

Severe Illness Son : R 50,000

Severe Illness Daughter : R 50,000

The total premium is R355.68pm. As mentioned, this is only additional cover to what we already have.

Anyone able to give us an idea of the costs of Life Cover in Australia and if its worth keeping our Life cover in South Africa when we move over? Both myself and I are under 30 years old.

Look forward to hearing from you.

Regards,

Robbie

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Hi Robbie

For an estimate on life insurance, you can check it out here : http://www.iselect.com.au/life/index.jsp?r...|S|b|4919562777

Once you start work in Australia, your employer will be paying your superannuation over to your super fund for you. As part of this you can also gain access to life insurance, often at a better rate than going directly with one of the insurance companies.

The best is to make use of one of the Super Annuation Funds that are known as "industry funds" rather than a bank or insurance company. It is law in Australia that you can choose your own fund: http://www.industrysuper.com/choose-indust...CFQXhbgod1zQKoQ

I have always belonged to Australian Super, as does my husband, and all of his life and disability insurance is through them.

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Thanks Mara,

Do you think its work keeping Life Insurance in South Africa?

The reason I am considering keeping Life Insurance in South Africa is becuase of the properties I own in South Africa (which I don't intend to sell any time soon). Most of the Life Cover I took out would be to cover the outstanding bonds in the even of my death.

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For the reason you stated above and the fact that its just over $50 per month, I'd keep it as long as I kept the SA properties.

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Thanks guys,

I think I'll just keep our Life Cover with Discovery and Liberty, mainly to cover the outstanding bonds for my properties. I guess its better to keep my SA investments separate to my AUS investments.

I will just make sure I read all the fine print in terms of being outside of South Africa should we have a claim / pay out.

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Emile, thats not too bad.

In my example above, I'm getting about R2mil cover for R350, which coverts to about $50 for $285 000 cover (i know i shouldn't convert), but at my SA rate, that equates to about $150 for about $850 000 cover.

So $160 a month for $1 million cover isnt toooo bad.

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Robbie P, I would suggest that you also have your properties in RSA valued officially, before you leave there, because when you get to sell them one day, you will have to declare the income in Australia and will be taxed on it, and I guess then you will be happy to have the valuations, as they could influence the tax that you are charged.

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We had Discovery life cover, and when we changed details for the move they requoted us almost double. So my suggestion is to get an estimate of how much your life cover will cost you in SA, when staying in Oz

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Mara, I'm not exactly sure what you meant by having my properties valued before I leave for Australia? Lets say I sell my properties in 10 years time, I will pay tax on the profits made in the sale. So how does valuation (today or in 10 years time) affect the amount of tax I pay?

Bullebak, thanks for the advice. I will find out all the details about having life cover in Sa while living in Aus. I did briefly bring this up with my brokers, but they didnt mentioned anything about a premium increase, but I will find out for sure.

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Mara, I'm not exactly sure what you meant by having my properties valued before I leave for Australia? Lets say I sell my properties in 10 years time, I will pay tax on the profits made in the sale. So how does valuation (today or in 10 years time) affect the amount of tax I pay?

Bullebak, thanks for the advice. I will find out all the details about having life cover in Sa while living in Aus. I did briefly bring this up with my brokers, but they didnt mentioned anything about a premium increase, but I will find out for sure.

Your property has to be valued at the time of moving to Australia when you are liable for tax in Oz. As you need to declare all income and net worth, in case you sell you will be taxed on capital gain. So the higher your valuation, the less capital gain for tax purposes when you do sell.

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Hi,

As far as I understood, If I sell one of my properties in South Africa, based on the profits, I will pays SARS any tax liable on the sale of my property.

Obviously, once I start working in Australia, I will need to start paying the Australian goverment tax on my income. So in order to register as an Australian tax payer, I need to declare EVERYTHING I own in South Africa?

You said the following: "So the higher your valuation, the less capital gain for tax purposes when you do sell."

With this in mind, if I value my properties today, the value will be alot less than if valued in 10 years time, which kind of contradicts your statement above.

Sorry for all the questions, but I'm just trying to get my head around the fact of the Australian Goverment getting involved with my investments in South Africa, especially if I intend keeping any money made from my South African properties in South Africa.

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Hi Robbie, yes, yes, yes, everthing you earn worldwide is taxable in Australia and has to be declared. If the country in which you are paying the tax has an agreement with Australia then you will get a tax credit for the tax paid in that country, in this case South Africa. HOWEVER, let us say that the going rate in RSA is 10% and in Australia 15% then you will still have to pay the 5% difference between the two. You have to declare the rent you receive, but, of course, all of the expenditure that you have on the properties in RSA can also be claimed as an expense in Aus.

Of course, you can keep quiet about your property in RSA, BUT in the end it will bite you on the butt. If you do keep quiet, you will never be able to bring the proceeds of the sale of those properties to Australia as you will be unable to explain where the funds came from and in that instance you would be taxed on the money as income and this could be as much as 45% instead of, I think, the 15% on the profit of a house sale. Of course, RSA could go the other way and your valuation today could be two or three times the value of what it will be in say 10 years from now.

I am not a financial advisor, so I suggest that you check all of the above facts with someone that really knows all the facts and figures. You can also peruse the Australian Tax Office site at www.ato.gov.au

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Thanks Mara,

The way I understood it was that if my portfolio was generating a profit at the end of the financial year, I would then get taxed on these profits by SARS at the end of the financial tax year.

If I sell a property in South Africa and make a profit, once again I will be taxed accordingly by SARS.

In both of the above profit declarations, if the money is kept in South Africa, I fail to see why it has anything to do with Australia. Even if I did want to bring over any profits to Australia, I'm sure it can do done very easily with a money transfer by onbtaining a Tax Clearance Certificate from SARS and just using your anual invesmtent allowance of R4.5mil per year to transfer funds.

My accountant is aware of my plans to move abroad and he is fully aware of my situation (in terms of my portfolio), but he hasnt mentioned anything like this to me.

If this was the case, if my portfolio was running at a HUGE annual lose, could these losses be offset against the income made in Austrlia? i.e would the Australian Revenue Service be prepared to refund me on my losses on my South African property portfolio? Somehow I think not.. If Australia expect a 'cut' in my South African profits, there rules must also cater for losses made in South Africa, which would mean a potential refund by the Austalian Revenue Service.

Anyways, I will chat to my accountant and let you all know what he says..

With regards to your previous statement, I'm not exactly sure what you meant by having my properties valued before I leave for Australia? Lets say I sell my properties in 10 years time, I will pay tax on the profits made in the sale. So how does valuation (today or in 10 years time) affect the amount of tax I pay?

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Let us say you bought a house five years ago, and have lived in it ever since. To make this answer easy, let us just presume you paid R100,000 for the house when you purchased it. Today it is worth R200,000. When you sell it in 5 years time, it is worth R400,000. If you do not get a valuation, then the value could well be established at the original purchase price rather than the price when you moved out of it. So the $400,000 sale price has R100,000 purchase price deducted and you pay tax on the R300,000 difference. HOWEVER, if you get a valuation before you move out, of R200,000 then this is the established value before you start renting it out and this is then what will be deducted from your sales price of R400,000 leaving you to pay tax on a profit of R200,000 only. You see in Aus you are not taxed on the family home that you live in, only on properties that you have an income on. So you have to clearly define what the value of the family home is, before it becomes an income generating property. Phew, that was a mouthful and I trust that I have explained it correctly.

Your argument that what happens in SA stays in SA is fine, BUT your downfall is when you bring that money to Australia, the fact that you have paid the taxes in SA does not matter, what does matter is the fact that you HAVE NEVER DECLARED the properties or income in Australia.

I am happy for you that your accountant knows what he is doing, but remember he is in South Africa dealing with South African law and possibly has no idea of what the Australian tax laws constitute.

Hope this has now clarified it for you. Once again, I am not a professional tax expert, I would advise you approach someone in Australia for advice, perhaps that would give you peace of mind.

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  • 2 weeks later...

Out of interest, this what my account had to say about the above:

The profits and losses you make in South Africa would be taxable both in SA and Australia. You would be, for tax purposes, an Australian Tax Resident and an Australian tax resident pays tax on their worldwide earnings. You cannot be tax resident in SA as there can only be one dominant tax residency position. A non-tax resident to South Africa pays tax on income from a South African Source. The property profits would therefore need to be declared to both SA and Aus tax authorities.

Countries have identified that this could create a problem in the there could be positions of double taxation. Many countries have Double Tax Agreements (DTA’s) with other countries which give some relief to the situation. The Australian tax authorities would allow the tax that you pay in South Africa as a tax credit in Australia therefore avoiding the double taxation.

Unfortunately losses do not follow the same principal. If the properties generate a loss in South Africa that loss cannot be carried over to Australia. Australia will allow the foreign tax loss as a credit and it will offset that foreign tax loss against future foreign income but will not offset this against Australian earnings.

I am also going to ask him about getting my properties valued BEFORE I leave for Australia to see if it will reduce the tax liable in Australia.

I will let you know what he has to say.

Regards,

Robbie

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Hi Robbie,

I am a CPA at an accounting firm in Sydney. Please get advice from an Australian accountant when you arrive here. Your South African accountant is correct with regards to Aus tax but there have been changes in the past year with more relief for foreign property owners.

The reason for the valuation before you leave is; in Australia you will get taxed on the profit between the selling price and the value of the property when you became an Aus tax resident (which will be when you arrive in Aus). So, if you bought the property 5 years ago for R500,000, the value of the property is R700,000 currently and you sell it in 3 years time for R1,000,000 you will be taxed in South Africa on R500,000 (R1,000,000 - R500,000 cost price) and on R300,000 in Aus (R1,000,000 - R700,000 value when you became an Aus Tax Resident).

This is a very simple explanation which does not cover many other possibilities. There are also relief for previous foreign primary residences sold when living in Aus, but with various conditions. Having worked in both South African tax and Aus tax, Aus tax is WAY MORE complex. Again, please speak to a good tax accountant once you arrive to avoid breaking the law in either country and to ensure you minimize your tax liability.

Cheers

J

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Thanks Jannie..

But in your example..

R300,000 in Aus (R1,000,000 - R700,000 value when you became an Aus Tax Resident).

If I only sell the property in 2 years time (2013), and the new value is R850 000, therefore I will be taxed in Australia on R150 000 (R1,000,000 - R850,000)

With this in mind, isnt it better to get the valuation done as late as possible or MUST it be done on all your properties once you become an Australian Tax Payer?

If i dont plan to sell my South African properties, will i still be required to do official valuations on my entire property portfolio?

Do you perhaps know of a good accountant based in Sydney who i can use to seek advice?

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Robbie,

Any profit on a foreign investment property will be calculated between the selling price and the value of the property when you became an Aus tax resident. That is the law in Australia. If you don’t get a valuation when you become a tax resident the Aus Tax Office (ATO) will estimate the value and this will be to your detriment and to their benefit. You can unfortunately not get a valuation later to minimize the profit. The valuation must be done on all your properties when you become an Aus tax resident, I would recommend even on your current primary residence.

If you don’t plan to sell your South African properties it will still be a good idea to get them valued when you leave South Africa. You might not intent to sell them now but things may change in future.

You are welcome to come see me when you are in Sydney. I am with an accounting firm in the Sydney CBD, across the road from the Queen Victoria building. Our firm details and my contact details are available here.

J

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The valuation must be done on all your properties when you become an Aus tax resident, I would recommend even on your current primary residence.

Can I ask what is considered an acceptable form of valuation? Is it a letter by one estate agent? by the bank? Could the valuation figure on the municipal rates be used?

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Australia works on a self assessment basis for tax, meaning whatever you put on your tax return they accept as correct and assess you accordingly. So you don’t lodge any supporting documentation when you lodge your tax return. The supporting documentation comes in if they select your return in their random sample to check returns and request your supporting docs. Unfortunately this system has no set rules as to supporting documentation, only that they should support your declarations on your tax return.

Having said the above I would recommend that you get an estate agent that works in the suburb of your property to give you a written valuation on their letterhead. It should be sufficient to support your tax return.

See the tax office website for further info ... Keeping your tax records

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Hi Jannie,

Thanks for the information.

Have you heard of a company called Windeed? They offer online Computor Aided Valuations of a property online for about R50.

Do you think I would be able to use this valuation? This is the same valuation methods most of the banks use when doing desktop valuations.

Regards,

Robbie

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Robbie, have not heard of them ... but also haven't been in South Africa for a couple of years. If it reflects the fair market value of your property when you leave the country, then it should be fine. Speak to your local accountant in South Africa. They will also be able to point you in the right direction with the valuations.

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