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Offshore Mortgages And CGT

01 November 2009   (0 Comments)
Posted by: Author: Angelique Worms
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Offshore Mortgages And CGT

Foreign exchange gains and losses not subject to CGT if they arise from settling a foreign property loan

So you have eventually found the offshore property of your dreams. It comes as a relief that you learn that you are able to raise an offshore mortgage bond to finance this wonderful opportunity. The South African Reserve Bank allows offshore mortgage bonds as long as certain criteria are met. But what about the CGT implications of foreign currency rate fluctuations if you have not yet settled the loan?

From 1 March 2003, the South African Income Tax Act was amended to include foreign currency gains or losses. Effectively what this means is that where you hold foreign currency assets (e.g. a foreign currency bank account that is not used for personal use), the changes in exchange rates and movement on the asset (i.e.deposits and withdrawals), could give rise to capital gains or losses.

These capital gains and losses are calculated on the currency movement, and asset "pools” need to be created to track the gain or loss by currency. You will be relieved to know that foreign currency gains or losses arising from the settlement of a liability used to acquire immovable property in a foreign country must be disregarded when calculating your capital gains and losses from a currency perspective.

In effect this means that your offshore mortgage bond will not attract a capital gain or loss from a currency perspective. There will however be a capital gain or loss on the actual disposal of the foreign property when it is eventually sold.

Source: By Angelique Worms (Taxbreaks)


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