South Africans who are busy packing for Perth and other climes down under need to be mindful of the capital gains tax (CGT)consequences in Australia of leaving behind a bank account in South Africa~or, for that matter, in any other foreign destination.Australia, like South Africa, tax "residents” on their worldwide income and emigrating to Australia automatically puts you in the "resident” category from day one.
According to the Australian Income Tax Assessment Act, possessing a foreign bank account is classified as a capital asset and referred to as a "chose in action” – anything that can be recovered by action as opposed to something that’s enjoyed by possession.As such it falls within the scope of their CGT legislation.When funds are banked in your South African (or other foreign) account you have acquired a CGT asset - but the deposit itself does not trigger a CGT event for tax purposes.
However, once you withdraw the funds from your South African bank account and convert it into Australian dollars you trigger a CGT event. The exchange rate variation at the time of the conversion will determine what the quantum of that capital gain will be.Australia also works on the realised amount, less the base cost, to determine the taxpayer’s capital gain.
For example, you had R100 000 in a deposit account in South Africa before you moved to Australia. Assume the exchange rate at the time was R5/A$1.But when you withdraw the funds the exchange rate is again taken into account.Assume it is now R6/A$. So you had a capital asset of A$20 000 initially (100 000 ÷ 5), which is now A$16 666 (100 000 ÷ 6).You have, therefore, suffered a capital loss of A$3 334.If you left when you the exchange rate was R6/A$1 and it later strengthened to R5/A$1 when you converted it to A$1, you would have made a gain of A$3 334.
But that is not all.Because you are now dealing in foreign currency the forex provisions in Australia’s tax legislation can come into play and it is possible for the ex-South African to have made a forex profit or loss on the exchange rate differential (R6/A$1 - R5/A$1) which can fall into his assessable income.
However, in order to prevent being taxed twice onthe same transaction the taxpayer will be able to deduct the forex gain/loss element from the CGT gain/loss, whatever the case may be.If you are earning A$25 000 or more a year, your marginal tax rate will be 30%.If you earn A$75 000 or more your marginal rate is 40% and if you are in the A$150 000 and above bracket your marginal rate jumps to 45%.
As an ex-South African recently said: "I’ll just pop back regularly and have a holiday in the RSA each year until my bank account is depleted.”That’s fine - as long as you don’t convert any of your funds into Australian currency.We know you’re probably a tad homesick!
If you are one of those South Africans who has hidden some of your assets in tax havens, be warned.Do not think your plunder will be safe from the eyes of the Australian taxman because it was undetected you resided in South Africa.
In a recent communiqué, Australia’s Tax Commissioner Michael D’Ascenzo warned: "Australian [taxpayers] have tax obligations for their worldwide income, including Australian and overseas sources like profits from tax haven entities and bank accounts. "We have increased our scrutiny of the misuse of tax havens, with increased information sharing with tax administrations in other countries and the use of more sophisticated analytical tools – meaning there is no safe place to hide undisclosed income.”
The taxman bites harder in Australia than he does in South Africa.However, it appears the locals there are feeling its pinch, because they have made representations to D’Ascenzo to levy CGT on a sliding scale – the longer you hold the asset, the lower the CGT rate to be applied. However, he’s still mulling it over!
Sounds like a good idea.Perhaps Minister Trevor Manuel and Commissioner Pravin Gordhan could apply their minds to such a suggestion.
Source: By Trevor Labuschagne (TaxTALK)