Foreign income confusion

[IslandStyle]

This is most likely quite obvious but I am not clear on this. We sold our property, cars and other items in the couple of months leading up to June 2011. We entered Australia on a temporary visa a few months later (with pending offshore PR application at the time) and transferred our savings by means of our travel allowance shortly after arriving.

Would the transfer of such savings be considered as foreign income?

[Superkruz]

This is most likely quite obvious but I am not clear on this. We sold our property, cars and other items in the couple of months leading up to June 2011. We entered Australia on a temporary visa a few months later (with pending offshore PR application at the time) and transferred our savings by means of our travel allowance shortly after arriving.

Would the transfer of such savings be considered as foreign income?

The transfer of funds does not constitute income, but the income itself does. What I mean is that if you earn taxable income, it is taxable, whether you transfer it or not.

Keep in mind that people who are non-residents in Australia for tax purposes, only has to declare income from an Australian source. People who are residents for tax purposes must declare their worldwide income. The visa that you hold is not the determining factor in deciding whether you are an Australian resident for tax purposes. You intention is the determining factor - if you moved to Australia with the intention of living there, then you are an Australian resident for tax purposes, regardless of which type of visa you hold. You were a non-resident (for tax purposes) up to when you moved to Australia, so any income earned in SA prior to that date is taxable in SA only.

[Jacques Voogt]

Hi

So if you have property in RSA and it generates income, do you declare that in RSA or on Aus?

If you declare in RSA you can also deduct your expenses in RSA, right? So once you move funds, it is already taxed, right?

What benefit would I have for declaring the RSA income in Aus and then also declaring, in Aus, the expenses incurred in RSA?

[21yearsoutofrsa]

If you are an Australian tax resident you are REQUIRED (benefit has nothing to do with it) to declare the income in Australia. You may deduct any expenses incurred in the generation of that income, like mortgage interest, rates and maintenance (the most obvious). It doesn't matter if you remit the funds or not. If you sell the property once you are an Australian tax resident you are also subject to Australian capital gains tax.

Any taxes paid in RSA will be deducted from the taxes payable in Australia, so you are not taxed twice.

A four line answer based on information provided, which should not be relied on in any court as there has not ben an opportunity to find out all the facts.

Edited November 1, 2012 by 16yearsoutofrsa

[Superkruz]

What benefit would I have for declaring the RSA income in Aus and then also declaring, in Aus, the expenses incurred in RSA?

You will have the benefit of knowing you have complied with your legal tax obligations.

[Hugo2]

Hi

So if you have property in RSA and it generates income, do you declare that in RSA or on Aus?

If you declare in RSA you can also deduct your expenses in RSA, right? So once you move funds, it is already taxed, right?

What benefit would I have for declaring the RSA income in Aus and then also declaring, in Aus, the expenses incurred in RSA?

Benefit of declaring in SA is tax compliant taxpayers have no problem selling their properties whilst abroad. Non-compliant taxpayers be they in our outside SA get stuck along the way. Benefit of declaring to ATO if your on PR is that you compliant and proceeds on sale can enter Australia without nasty questions. Not being compliant makes you a money launderer...very little need be said about this status and the risks...

[Hugo2]

This is most likely quite obvious but I am not clear on this. We sold our property, cars and other items in the couple of months leading up to June 2011. We entered Australia on a temporary visa a few months later (with pending offshore PR application at the time) and transferred our savings by means of our travel allowance shortly after arriving.

Would the transfer of such savings be considered as foreign income?

No should be tax free. it is foreign income but not taxed by ATO as accrual date prior to tax residency date. Need more info, fee free to make contact with me at Cross Border Tax Advisory Services, a www.cashkows.com group company

HUGO

[Hugo2]

just a quick reminder of my old tangent: tax residency is not simple, many refers to PR many refers to intention on arrival, many questions intention vs reality as your intention is to do PR but could be some time before you can turn intention into reality. intention has an override, two in fact, lifestyle (pipe and slippers) and where you will return at end of jour journey and until you have that PR you can rely on treaties to consider you SA tax resident. do not forget the tax treaty, the ATO and SARS interpretation very similar and you are allowed to use the treaty to shield you against ATO world wide taxation until finances at home is sorted. this time line is however limited so don't abuse treaty, it will come to bite you. arriving in Australia with a few loose assets etc being sold or in the process of being sold will not normally not attract ATO taxes but it is something that is determined uniquely to each person. make sure you obtain ato approved advisor's guidance

[Jacques Voogt]

Hi Hugo2 and all others.

Thanks for your inputs. The question is not so much whether or not I should declare. I know I have to declare somewhere and some how all income. Even the tiny little 147 of interest I recieved for the 2012 tax year is declared as per the tax certificate from ABSA.

The reason I asked where or how to declare is purely from a investment point of view.

The investment in property is a long term investment and similar to shares can grow or shrink but requires a bit more work from the investor side in terms of getting tennants, making sure they pay on time, ensuring your bond is also paid on time, maintenance, etc. so as to keep the expenses low and generate some form of income.

One of the costs involved is the finance charges that would be an expense subtracted from the rental income.

Whatever income I would have left would then be taxed at my current income bracket.

Now the question is, if I do not have any other income in RSA then my only income would be that from the rent. That would put me in a different tax bracket in RSA.

The property is in RSA and the income and expenses are all in ZAR.

When I am in Aus, my main income would be in AUD and declared as such. Considering the devaluation of the Rand against the Dollar how would I determine the actual income if I had to declare everything in Aus only. Every month there would be say R1000 income, but that would not stay the same in AUD terms. Also it would not make sense to exchange such small amounts to AUD on a monthly basis as that would incur additional costs. Then I would have monthly expenses in ZAR. Should I convert these to AUD as and when it happens or once a year. If once a year, when? What if the exchange rate at the time of doing my taxes is better. I would be paying more tax on more income and then 2 days later I could loose some of that value after I paid tax on it.

All these things together determines the projected return on investment. For me to determine if the investment is still growing or if I should sell it is simple in a single currency with one TAX agency. But I do not have the knowledge or experience yet to know how this will work when there are different Currencies, incomes and Tax agencies involved.

So I find it difficult to determine the projected return on investment in light of the intended move to Australia. That is why we ask questions on this forum right? To lean something, right?

When I refer to Tax benefit, I refer to paying the tax that I need to pay, nothing more and nothing less.

Business owners will often be advised to buy equipment or vehicles so as to incur additional expenses and reduce profit so as to pay a smaller total amount of tax whilst renewing or replacing equipment or growing their business. There is nothing wrong with that either.

Similarly, property owners may from time to time perform some maintenance so as to reduce the total income and hence pay a smaller amount of tax.

I am no financial fundi. All I'm trying to get to is to see if the investment would still be sensible and to make sure I do it right and not end up being taxed twice due to some mistake on my part.

What would happen if I leave the investment and bank account to grow here for the next 10 years or re-invest some of the income and only at a later stage move the funds to Aus. Currently I pay tax on the profit every year. Would I pay tax on the profits only when it is exchanged to AUD after say 10 years or would it be anually. If it is once after 10 years and the profit is very high, would I have to pay 45% because it is all declared in that one year or would a annual profit taking and declaration at say 25% tax be better.

It would sure be a lot simpler if we were to sell up everything and just go, but is that the best move from an investment point of view?

In short, what it seems like I need to do, is grow the portfolio and keep profits low on it's own here in RSA. When I retire, I would stop growing the portfolio and only take the profit to make a living off or sell everything and take the capital... and pay tax on the profit and/or capital gain of course.

Surrendering the investment now would not yeild the intended returns and re-investing it in AUD would again take a while before it becomes profitable.

[Superkruz]

It would sure be a lot simpler if we were to sell up everything and just go, but is that the best move from an investment point of view?

This might not be a bad idea. I kept a townhouse in Centurion when I moved to Australia in 2006. At the time it was worth about R480k, which was about $80k at the exchange rate at the time. Today, it is worth about R520k which is about $50k.

Based on this I think that simply selling now and getting your money in Australia could be a smart move as the value of the Rand is on a slippery slope that keeps declining over time. That way you will have fewer headaches with tenants, tax offices etc and quite possibly even have more money in the end.

[Superkruz]

Now the question is, if I do not have any other income in RSA then my only income would be that from the rent. That would put me in a different tax bracket in RSA.

I cant find a question in here.

[Superkruz]

When I am in Aus, my main income would be in AUD and declared as such. Considering the devaluation of the Rand against the Dollar how would I determine the actual income if I had to declare everything in Aus only

1. You determine the AUD value by converting the ZAR amount at the relevant exchange rate. As rent is received monthly, you could use the monthly average rate, for example.

2. There is no situation that you would declare in Aus only. You will either declare in SA only, or in both SA and Aus.

When I am in Aus, my main income would be in AUD and declared as such. Considering the devaluation of the Rand against the Dollar how would I determine the actual income if I had to declare everything in Aus only

Every month there would be say R1000 income, but that would not stay the same in AUD terms. Also it would not make sense to exchange such small amounts to AUD on a monthly basis as that would incur additional costs. Then I would have monthly expenses in ZAR. Should I convert these to AUD as and when it happens or once a year. If once a year, when?

Converting these small amounts every month will not be worth the effort as the bank charges will be a lot. When to convert the money and take it to Aus is crystal ball gazing... nobody can tell you when and how often, so the best is to watch the exchange rate and when it hits a rate that you thinks is a good one, go for it, otherwise just sit and watch it slide.

What if the exchange rate at the time of doing my taxes is better. I would be paying more tax on more income and then 2 days later I could loose some of that value after I paid tax on it.

You use the rate when the rent was earned, interest paid, etc - not the rate of the day you file your tax return. Forex changes after that has no impact on the amount of tax payable. The bottom line is that this is a lottery - you know from experience that you will lose (the rand consistently declines over long term) but you try to limit the damage by benefiting from short term improvements of the rand. Good luck, but from what you've written it seems like an uphill battle. Edited November 28, 2012 by Superkruz

[Jacques Voogt]

Hey Superkruz

Thanks for your inputs.

Not all properties has shown such poor growth as you are describing.

Perhaps try privateproperty's free property estimate. It is based on recent actual sale prices of units within the immediate area.

I would imagine you would get closer to R700,000 to R750,000 for it today. Still slightly less at only AUD 75,000 to AUD 80,000 but I may very well be far off.

Either way, capital loss is also tax deductible, so the nett loss is not that much.

But that is just my opinion.

Keep in mind, when you left you would have paid off (thumb-suck) perhaps 20% of the bond, so after selling it for AUD80K you would have been left with only AUD16K

In the past 6 years, a tenant would have been paying for it and perhaps have allowed you to pay off closer to (thumb-suck) perhaps 50% of the bond, so after selling it for your AUD50K you would still have AUD25K left. Perhaps more if it is worth a bit more. Now couple that with perhaps a nett capital loss benefit and you tend to get out a little bit more anyways.

When the property starts generating so much income that your tax on the income becomes significant, it is often wise to re-finance the property and grow the portfolio.

This then generates more capital that can grow while increasing finance costs and reducing tax costs.

Unfortunately property is only good investment over the very long term and selling too soon often results in a loss rather than a profit.

Of course, when the investment was made, we were not about to leave and selling now would not yield much of a return.

I totally agree that the ZAR will devaluate at an increasing rate over time, which means one should keep a close eye on the finances to know when to pull out.

My problem is that, like the original poster IslandStyle, my lack of knowledge of the tax laws and the foreign income causes confusion at this stage. And that confusion means my projections for the foreseeable future is less accurate as it is more based on assumptions rather than fact and trends. I'm sure I will figure it out, most likely with the help of a tax consultant and then I will know if I should keep it or chuck it. And if I keep it I will know how to monitor it.

Keep in mind, my actual investment is very little. It is mostly carrying the risk and the bank essentially funds the investment and recovery is from a tenant. So as long as I manage the risk correctly, I do not stand to loose too much, but I still need to figure out what the current situation is and how it will look going forward so I can monitor the situation, in the event that it promises future returns.

It sounds cruel to milk tenants, but that is investment. Even if I invest in some retirement annuity or even a business, somewhere someone has to pay for some form of use or service more than what it really cost so that there can be profits and return on investment.

[Superkruz]

Perhaps try privateproperty's free property estimate. It is based on recent actual sale prices of units within the immediate area.

I would imagine you would get closer to R700,000 to R750,000 for it today.

I did have a look at the price that similar units are selling at and unfortunately it is in the R500-520k range.

I guess the point the point I was trying to make is that any "profit" one makes is quickly eroded by the ever-declining value of the Rand, and that is why I feel it is not worth the effort to hang onto it. The risk that one has to take for an unsure, shrinking profit (that may even turn out to be a loss) is not worth it. Rather cut your losses and get the ZAR converted to AUD asap, then look for opportunities to invest over in Aus where you have hedged yourself against exchange rate fluctuation. Also trying to manage investment properties from halfway around the world is tricky as you rely on others to do what needs to be done in terms of maintenance etc. As the saying goes "ver van jou goed, naby aan jou skade".

merry xmas and good luck with your decisions.

Edited December 25, 2012 by Superkruz

[mistermoose]

Superkruz, interesting to see that you moved from Aus to USA. What prompted the move?

[OfftoOz]

The rental income questions above are interesting but my question is quite simple.

If I have sold my only property and am leaving to Oz in March, how best would I transfer my money into Oz?

Ie. would I have any issues with declaring it when I leave (when I transfer it) even though I am not 'emmigrating' formally?

I know I can either transfer it directly from my bank in SA to my bank in Oz (have an account at Westpac) or I can use the service mentioned on the forum.

Its under the annual allowance allowed from SA.

Any advice please?

[RichtB]

You can invest a max of R4mil per person per calender year. Tax clearance needs to be obtained from SARS. Exchange4Free helped us with the transfer from the sale of our house,

Contact Anita Huyser, they get the SARS clearance and do all the other arrangements for you.

E-mail: anita@exchange4free.com

Visit their website for more info:

www.exchange4free.com

[OfftoOz]

Thanks!

And if its under a million?

Do you not declare anything? ie. not pay tax on the money leaving in any way?

[LeeInOz]

Holiday allowance is what we did. I think it is R 750 k per adult. Got airline tickets and visa to the bank

But I suggest that you do the following as well

We wrote a letter to SARS stating we were leaving for an extended period. A lady at SARS said to do this unless you are sure you will not return. Our tax files are still open but suspended. This has allowed us to keep an account there which I have used to get money back and forth.

[Superkruz]

And if its under a million?

Do you not declare anything?

No, if it is under the travel allowance amount of $750k, you just go to the bank with your ticket and do the transfer - no need to declare anything to anyone.

..... not pay tax on the money leaving in any way?

Definitely not - you already paid tax thereon when you earned it. Transferring it from your SA account to your Aus account attracts no tax, just like transferring it between two SA bank accounts wouldn't. Edited January 6, 2013 by Superkruz

[Superkruz]

Superkruz, interesting to see that you moved from Aus to USA. What prompted the move?

I was one of the lucky ones to get a Green Card (ie Permanent Residency) via the Green card lottery and figured what the heck.... why not, let's see whether the States is what I imagine it to be. Edited January 6, 2013 by Superkruz

[miraclebabycaw]

Actually you are allowed R1M per adult as a discretionary allowance of which the travel allowance forms part. TA is not limited to 750 000 but can be the full R1M per person. No tax directive needed. E4F are great at sorting this out for you. Kids can also take a TA..I think of 250K each. Over 1M per person you need to declare it.

[OfftoOz]

Thanks all!

[Superkruz]

Over 1M per person you need to declare it.

To who do you declare it? As far as I understand declaring it to anybody won't help much... there are limits on the amount that you can take out with you as a discretionary allowance - you cannot exceed that, even if you declare it to the whole world. What you need to do if you want to take out more money, is to take it out as something else, like an investment allowance for example, for which you need a tax clearance certificate.

[OfftoOz]

Im taking out less than the allowance. All I wanted to know was will I need to pay any tax on it if it sits and earns interest (be it at a low amount) in an Australian bank account, back in SA, ie. seen as income being generated in a foreign country.