ATO tax on regular payment from a living annuity

[Go RSA]

Does one pay Australian tax on the total quarterly Rand amount one receives from a Living Annuity?

Does the ATO permit any deductions?

 

 

 

[ottg]

Someone can correct me but as I understand a tax-free annuity in RSA is not tax-free in Aus.

All income is Aus is taxable.

[RYLC]

My in-laws have been in this situation. PR in Australia with annuity income paid to them in Australia. From their experience, you'll have to do an annual tax return and declare all income from all sources. You use the AU Dollar amounts received to your bank account.

 

The first $18,200 is tax free and then the tax rates are as per the table below.

 

Since it is not income from working, there probably aren't any deductions you can claim but a tax agent will be able to advise.

 

Income tax rates for 2018/2019 financial year

Income	Marginal tax rate	Tax payable*
$0-$18,200	0%	Nil
$18,201- $37,000	19%	19 cents for each $1 over $18,200
$37,001-$90,000	32.5%	$3,572 plus 32.5 cents for each dollar over $37,000
$90,001-$180,000	37%	$20,797 plus 37 cents for each dollar over $90,000

Edited August 28, 2018 by RYLC

[Gerhardk]

As a deduction you should be able to claim whatever you are paying your Australian tax agent to help you!

 

There are a lot of variables to your question about the tax and the responses above are broadly correct but have a look at 'Undeducted Purchase Price' for the annuity and consider requesting a determination from the ATO - details on the link.

 

Link https://www.ato.gov.au/Individuals/Income-and-deductions/Deductions-you-can-claim/Other-deductions/Undeducted-Purchase-Price-of-a-foreign-pension-or-annuity/

  

[RYLC]

9 hours ago, Gerhardk said:

As a deduction you should be able to claim whatever you are paying your Australian tax agent to help you!

  

 

Only in the tax return for the following year though 

[Go RSA]

Great replies, thanks.

 

For the South African policy, one can elect to draw down between 2.5% and 17.5%.

Can I assume that the ATO doesn't care what you elect - they tax you on your actual Rands received?

 

 

 

 

 

[RYLC]

They don’t care how much you draw 

[Go RSA]

15 hours ago, RYLC said:

They don’t care how much you draw 

 

OK thanks.

[TimeToGo]

Hi All,

Some advice on this topic please...  

I have been investigating the option to get paid a living annuity in RSA and then transferring the funds here.  The possibility of getting a nil tax directive in RSA and then paying the tax here is complex from what I can see.  An application - RST01 needs to be completed and stamped by the ATO which is then posted to SARS who will issue a RST02 (effectively a nil tax directive), but there are a good few other requirements too.  What about the option of paying the tax in RSA and then requesting subsequent relief from Australian tax from the ATO.  Has anyone gone this route, if it is even a possibility?  If so, what experiences have you had with this?

 

I'd ideally like to talk to an Australian tax consultant who has some experience in dealing with this.  Any recommendations?

 

Thanks...

 

 

[RYLC]

38 minutes ago, TimeToGo said:

What about the option of paying the tax in RSA and then requesting subsequent relief from Australian tax from the ATO.

 

Tax is tied to residence status and, since you are an Australian resident, I can't see a way to do what you want to do. In pretty much all countries, tax is not paid to the source country, it is paid to the residence country.  It's the reason that so many companies and big businesses choose to be formed and domiciled in lower taxing countries because it is where they are "resident" that counts (not where the money comes from).

 

Trying to change your tax residence status, even if only temporarily, will have other unintended consequences such as being taxed as a non-resident on your wages, issues with claiming an exemption on your home as your Principle Place of Residence and so forth.

Edited June 14, 2019 by RYLC

[TimeToGo]

Thanks RYLC, I hadn't thought of it from that angle at all. 

 

However, in order to prevent "with-holding" tax from being deducted from a Living Annuity, SARS requires some onerous forms to be completed.  If they aren't completed and/or they don't meet their requirements SARS will insist on with-holding tax being deducted from any LA payments.  For more information see this page on SARS website.  If tax is paid in RSA, there must be some mechanism to obtain tax relief in Aus, particularly since there is a double taxation agreement.  I see that the ATO has a foreign income tax offset, surely this would apply?   I definitely don't want to change tax residency status, otherwise I would become liable for the new Emigrant tax... not good!  

 

Anyone with some recommendations for a good Australian tax consultant?

Edited June 14, 2019 by TimeToGo
changed content

[ottg]

@TimeToGoI think you answered your own question. Here is my view - the RST01 form is the way to go. But even if you pay tax in RSA, in Aus when you submit your tax return you need to state foreign income. Any tax paid in RSA will be offset against tax due in Aus. You just need to provide the proof. You will not be double taxed in Aus.

[TimeToGo]

On 6/15/2019 at 2:23 PM, ottg said:

@TimeToGoI think you answered your own question. Here is my view - the RST01 form is the way to go. But even if you pay tax in RSA, in Aus when you submit your tax return you need to state foreign income. Any tax paid in RSA will be offset against tax due in Aus. You just need to provide the proof. You will not be double taxed in Aus.

Thanks OTTG,  I've done quite a bit of further research on this and have confirmed that any tax paid in RSA would be offset by the ATO against any Australian tax.  

 

But another question for you.  If you had the choice to either encash your entire RA, pay the RSA tax and bring the money over here via Financial Emigration, or receive income through a Living Annuity, what would you choose and why?

[ottg]

I have done financial emigration but only after being here for some years. That occurred after leaving an RSA investment unattended and an major share investment turned pear shape. That said, it could turned out the other way as well.

The funny part is even settled here, I have shares in Aus , USA and RSA but managed from Australia. Switch when and as I see fit. Some shares in RSA is more stable than ASX. In short, any country has a green island, it doesnt matter in which country you invest as long as you can manage the risk, get growth and know when to pull out. That takes homework as a few factors influence such a decision.

 

To answer your question: depends if you know what to do once you RRs are in Australia.

[XXXXX]

Pro's and cons to both.  Long term return on the JSE is probably about 13.5% to 14.5% (this return will be diluted If you're SA investment is subject to regulation 28, which RA investments are).  Long term return on the ASX would be about 6.5%.  As a rule in thumb, I personally regard the differential in return to be equally compensated by the long term depreciation of the Rand.

 

Leaving your Investements in SA, makes you subject to regulatory uncertainty, which depending on your views could be a high risk (all the talk in compulsory investment in prescribed assets).  Personally, I don't regard it as that high a risk, and it is compensated by the tax free amounts of any withdrawals being periodically increased (but there is no guarantee on that).

 

I'm also a firm believer (unless you're a sophisticated investor) in that your investments should be in the same currency as your liabilities.   Why subject yourself to uncertainity and complexity to being subject to two jurisdictions.

 

Either way, I've recently made the decision to cash in my retirement annuity and bring it across to OZ.  My future is in Australia.

 

Ps.  for what its worth - you don't need to pay exorbitant amounts to financial emigration agencies in order to do a financial emigration.  You can do it yourself.  Neither do you need to financially emigrate to ensure you're not subject to the so called "expat tax" - this is a narrative falsely sold by migration agencies.....