Know the ins and outs

What you can and can’t do with your R2m…

Finweek English Edition - - Creating Wealth - BERNARD SACKS

MA­JOR DE­VEL­OP­MENTS within the re­gion, mar­ket­ing of prop­er­ties in In­dian Ocean is­lands – even the longer-term prospects of an eco­nomic re­vival in Zim­babwe – are prompt­ing a fresh look by South Africans at in­vest­ment op­por­tu­ni­ties in the states mak­ing up the South­ern African De­vel­op­ment Com­mu­nity.

But be­fore tak­ing the plunge, South African tax­pay­ers con­tem­plat­ing in­vest­ments out­side our borders – per­haps even a flat in a Euro­pean city rather than an SADC coun­try – need to un­der­stand what’s al­lowed and, in par­tic­u­lar, the scope of the mea­sures in­tro­duced in this year’s Bud­get and now over­seen by the SA Re­serve Bank’s for­eign sur­veil­lance di­vi­sion (for­merly ex­change con­trol).

First, they should know there’s a spe­cial pro­vi­sion al­low­ing in­di­vid­u­als to in­vest in fixed prop­erty – a hol­i­day home or a farm, per­haps – in SADC coun­tries (An­gola, Botswana, Demo­cratic Repub­lic of Congo, Le­sotho, Malawi, Mau­ri­tius, Mozam­bique, Namibia, SA, Swazi­land, Tan­za­nia, Zam­bia and Zim­babwe).

To in­vest in an SADC coun­try you’ll need a tax clear­ance cer­tifi­cate and, while there’s no limit on an in­vest­ment, the Bank’s for­eign sur­veil­lance di­vi­sion will need to know what – and why – you’re buy­ing. That pro­vi­sion is ad­di­tional to the mea­sure al­low­ing in­di­vid­u­als to in­vest, sub­ject to a tax clear­ance cer­tifi­cate, an amount of R2m any­where over­seas.

That’s an over­all limit – not an an­nual al­lowance – and may not be ap­plied to an in­vest­ment in the com­mon mone­tary area (CMA) com­pris­ing SA, Le­sotho, Namibia and Swazi­land. That puts paid to any no­tion of form­ing an off­shore trust that in­vests in turn in SA – or else­where in the CMA (the so-called ‘loop­back’ struc­ture that fa­cil­i­tates the ex­port of cap­i­tal and is in con­tra­ven­tion of SA’s ex­change con­trol reg­u­la­tions).

And if an in­vestor hav­ing used his R2m al­lowance runs into a spot of bother – say, an apart­ment in Lon­don is un-let for sev­eral months and there’s no rental in­come or cash re­serve to con­trib- ute to a mort­gage – funds will have to be bor­rowed off­shore with­out any re­course to SA. In dire cir­cum­stances a spe­cial ap­pli­ca­tion to top up or sup­port an in­vest­ment be­yond the R2m al­lowance may be made to the Bank.

The R2m al­lowance is in ad­di­tion to the R500 000 dis­cre­tionary al­lowance that South African res­i­dents aged 18 and over may use for travel, gifts, do­na­tions to mis­sion­ar­ies and main­te­nance. SA res­i­dents aged un­der 18 have a R160 000 travel al­lowance. Pre­vi­ously, an­nual travel al­lowances were lim­ited to R160 000/ adult and R50 000/child un­der 12.

The R500 000 is a “con­sump­tion” al­lowance for those four cat­e­gories only. While no tax clear­ance cer­tifi­cate is re­quired, the in­tent is to avoid the ad­min­is­tra­tive over­load cre­ated by a wel­ter of ap­pli­ca­tions from in­di­vid­u­als want­ing larger travel al­lowances or to in­crease pay­ments to fam­ily mem­bers over­seas.

It’s a “lose-it-or-use-it” al­lowance that doesn’t per­mit any carry over from one year to the next. And since its ap­pli­ca­tion is con­fined to the four cat­e­gories, a part of it may not be used to top up your R2m over­all al­lowance, over­come the bother ex­pe­ri­enced through the lack of rental in­come from that Lon­don apart­ment – or to put down a de­posit on an­other prop­erty in­vest­ment. Di­rec­tor at Mazars Moores Row­land

(a tax, au­dit and ad­vi­sory firm)

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