Moving between countries can be a difficult and daunting experience, but many people cope with the initial phases of culture shock by reminding themselves that they made the move in order to secure a better future for themselves and their children. It will however be very difficult to achieve this ‘better future’ if it is not built on a solid financial foundation.
You are no doubt aware that the South African government operates strict exchange control policies. This means that you are restricted in terms of how much money you can move out of South Africa during any given calendar year. The South African government previously indicated that they are moving towards a significant relaxation of the exchange control regulations but it remains to be seen whether this resolve will survive the current international financial turmoil. The South African Reserve Bank credits exchange control measures with protecting the country’s banks from the worst of the fallout of the global ‘credit crunch’. Therefore, it is likely that you will have to continue to take the effect of these measures into consideration
when making decisions about transferring money out of South Africa.
Your money transfer options are the following:
Formal Emigration: It is possible to ‘Formally Emigrate for Exchange Control Purposes’. This gives you the right to move a significant amount of cash out of South Africa without giving up your South African passport or right of return. The regulations allow you to legally transfer R4 million in cash per family unit (R2 million per individual) and a further $1,5 million in chattels and movable assets out of South Africa. Any amount above these values will attract a 10% Excon Exit Levy (EEL). If you decide to leave any assets in South Africa it will have to be controlled by a nominated agent (usually your bank) and you will have limited access to it. If you are quite certain that you will not return to South Africa in the near future, this can be
a very attractive option. It is however also quite a ‘radical’ one since you will have to
‘deregister’ from the South African tax system and give an undertaking not to return
permanently within five years. You may also not directly control any South African bank accounts or credit cards. It is highly recommended that you get professional advice before making your final decision on formal migration.
Foreign Investment Allowance: The exchange control measures allow South African citizens to make direct foreign investments to the value of R2 million. Utilising this option is perhaps a bit less complicated than formally emigrating but you will still have to jump through a few bureaucratic hoops. The most significant of these is an application for a ‘Tax Clearance Certificate’ from the South African Revenue Service (SARS) to show that your tax affairs are in order. With this in hand you can then formally apply for the utilisation of your allowance. It is important to be ready with a nominated foreign investment as the relevant details will have to be filled in on the form. A property purchase will normally qualify as an eligible investment.
Travel Allowance: You are allowed to transfer R500,000 per year, per adult (R160,000 per child) out of South Africa for travel purposes. This allowance can also be used for subsistence and other living expenses while outside of South Africa. To make use of this allowance you will have to produce a ticket for travel out of South Africa. It is an absolute requirement that this ticket originates in South Africa. This means that you cannot use a return ticket of which the first leg started in Australia.
Gift Allowance: South African citizens are allowed to send R500,000 per year abroad as gifts. This allowance can be used to move small amounts of cash in the form of gifts between family members. It is important to note however that single transactions worth more than R100,000 will be taxed at 20%.
It should be quite clear from the above that you will have to prepare yourself for a bit of ‘red tape’ when it comes to moving your funds out of South Africa. It is therefore advisable that you spend some time planning a ‘strategy’ that fits you and your circumstances the best. It would also be worth your while to get some advice from someone who has experience in transferring money from South Africa. It is, lastly, advisable that you make use of a dedicated transfer service since they see serving expat South Africans as part of their core business. You should get a much more personal and knowledgeable service from them than what you are likely to encounter by simply walking into your local bank. An example of such a service (and some more information on the types of transfers mentioned above) can be found at exchange4free.co.za
SOUTH AFRICAN TAX STATUS
South Africa operates a ‘Residence Based Tax System’. Under this system you are liable for tax on income anywhere in the world if you are ‘ordinarily resident’ in South Africa. The meaning of ‘ordinarily resident’ is quite fluid but it is generally interpreted as being physically present inside South Africa for a significant portion of the tax year. If you are living in Australia on a full time basis you should therefore not be too worried about having to pay tax in South Africa on international income. However, income generated inside South Africa will still be subject to the normal rates of
taxation. If your situation is complex or if you need specific advice, it is highly recommended that you speak with a competent tax advisor, with a track record of serving expats, to help you to clarify your tax status. A word of warning for the future: If you take up Australian citizenship, while also remaining a South African citizen, you should always make sure that you enter and leave South Africa with your South African travel documents. This requirement will be clearly stated in the document that you will receive when the South African government gives you permission to
take up dual citizenship. The reason why this is so important is that entering and leaving the Republic on foreign documents can be interpreted as a form of tax evasion under the ‘residence based’ scheme as it will leave SARS without proof that you were inside the country for certain periods.
AUSTRALIAN TAX STATUS
One of the first things that you should do after settling in should be to go and see a
competent tax advisor to explain some of the major features of the Australian tax system to you. Some of the things that you as a new immigrant will have to take note of are:
? All tax related transactions in Australia are recorded using a Tax File Number (TFN) and you should get one as soon as possible after your arrival. You can apply for it at: iar.ato.gov.au
? You will become liable to pay income tax in Australia as soon as you become a ‘tax resident’ of Australia. For most people this will coincide with the date of their arrival in the country. You should take care to reflect this date on your first tax return otherwise you might be taxed for the whole tax year.
? Under the Australian tax system you are theoretically liable to pay tax on income anywhere in the world if you are an Australian tax resident. This sounds worse than it actually is since ‘double taxation’ is prevented by ‘offsetting’ tax already paid in the country where the income was generated. In most cases this leads to no additional tax being payable in Australia.
? Many migrants have questions about the Capital Gains Tax implications of the sale of a property in South Africa after they have already moved to Australia. It is always best to get professional advice in a case like this but there would generally be no tax payable in Australia if the property was bought before you moved here. This is because the ‘Capital Gains Tax Event’ (in this case the purchase of the property) took place before you became an Australian tax resident.
ACCESSING SOUTH AFRICAN RETIREMENT ANNUITIES
Many South African migrants have been frustrated by the fact that funds in South African retirement annuities were ‘locked in’ until they reach age 55, even if they have left South Africa for good. The good news is that SARS recently changed their rules and that it is now possible to access, and transfer, 100% of your retirement annuities. The catch is that this option is only available to people who have formally emigrated (i.e. notified the government using the prescribed form and transferred any remaining funds in South Africa into a ‘bank controlled’ account). Another requirement (as per recent SARS ruling) is that the formal emigration must have
taken place after 1 March 2008. Making use of this provision can be quite complex since it involves reactivating your SARS account and working through a number of application forms. It is therefore advisable to seek professional help in preparing your application. More information on the process can be found at julianhaw.com.
MEDICAL COVER
The Australian healthcare system could perhaps be best described as a hybrid system, as services are provided by both government and private institutions. Medicare is Australia’s universal, publically funded, health-care system. Every taxpayer pays a 1.5% Medicare levy (high earners without private insurance pay an additional 1%). To this the government adds significant extra funding. Under the Medicare system all members (in effect all citizens and permanent residents) are entitled to free in-patient hospital treatment in government hospitals and subsidised out-of-hospital medical treatment. Patients are often required to pay for out-of-hospital treatments themselves after which they can claim a refund from Medicare. This can be quite inconvenient since you will often have to go to a Medicare office to claim the refund. It is therefore always better to look for service providers who do ‘bulk billing’. This means that claims are submitted directly to Medicare without you having to take any further action.
It must be emphasised that you have to hold permanent residence to be eligible for Medicare. If you are in Australia on a work permit you will have to rely on private health insurance for all your health needs. For more information about Medicare, and how to apply, see: medicareaustralia.gov.au
In addition to Medicare the Australian Government also runs the Pharmaceutical Benefits Scheme, under which prescription medicines are subsidised. More information about PBS can be found at: medicareaustralia.gov.au/public/services/scripts/index.jsp
Private Health Insurance
There are a number of private health insurance funds operating in Australia and the government is actively encouraging people to join one of them. Premiums are surprisingly affordable when compared to South African rates and will ensure treatment in private hospitals and faster access to service providers. The largest private health insurer is Medibank (medibank.com.au). Medibank operates nationally but many other funds restrict their activities to a particular state. The database hosted by the Private Health Initiative of the Australian government will help you to find a provider in your local area. It can be accessed at: privatehealth.gov.au
SUPERANNUATION
The Australian pension system is quite different from what you were used to in South Africa (where you probably belonged to a company pension scheme or contributed to a private annuity). At the heart of the Australian system is private (in the sense that it is not managed by your employer but by a third party nominated by you) superannuation funds into which your employer has to make regular contributions (currently at least 9% of gross salary). You can also make private contributions if you so wish and there are numerous tax advantages to doing so. Furthermore, it is possible to combine certain other financial service products (e.g. life insurance) with your superannuation. This can be highly advantageous and you should certainly investigate the different possibilities. It is your responsibility to choose your own superannuation fund and investment strategy and this is therefore another area where it is highly recommended that you seek professional advice before making any final decisions. If you have worked in Australia already and lost your super, try ATO’s SuperSeeker database (superseeker.super.ato.gov.au).
BUYING A DREAM HOME
Buying your own house is one of the biggest financial steps that you are ever likely to take. It is therefore imperative that you do some solid research before ‘taking the plunge’. This can obviously be quite difficult to do if you are new to a country!
Some of the things that you may want to take into account are:
. As a new migrant you will generally have to wait for at least six months after your
arrival before you can apply for a mortgage. This is because the banks will consider
your Australian credit record before making a decision and it will take at least half a
year to build up a favourable record.
. It is generally very difficult and expensive to buy a property if you do not have
permanent residence. This is because banks will often require very large deposits
before lending to work permit holders. You will also not be eligible for the grants and
concessions available to citizens and permanent residents (see below). It is
therefore perhaps better to wait until you have been granted permanent residence
before applying for a mortgage.
. There are several different programs, designed to help first time home buyers to ‘get on the property ladder’. The most important of these are the First Home Buyer’s
Grant administered by the states and territories and the waiving of stamp duty under
certain circumstances. The First Home Buyer’s Grant is usually a substantial
payment that can be offset against the cost of buying your first Australian home. It is
only available to citizens and permanent residents. More information about the
scheme (including amounts and application procedures) can be found at: firsthome.gov.au (Click on the icon representing your state or territory).
Deciding on the right property will require a lot of solid research, regardless of whether you plan on renting or buying. Here are some tools to help you to ‘do your homework’ properly:
. Global Property Guide (globalpropertyguide.com) will help you put your
pending property transaction into a wider perspective. The site is chock full of penetrating analyses of market conditions, long term trends, taxes and costs, rental
yields etc. It will definitely be worth your while to spend some time reading the
Australian section of this very informative website before beginning your property
search. It can be found at: globalpropertyguide.com/Pacific/Australia
. There are several websites, with Australia-wide coverage, that will allow you to do
detailed searches of properties by suburb, price or specification. Spending some
time on these sites will give you a good idea of what is available, and at what cost,
before you even set foot in a particular suburb.
Two good places to start are:
RealEstate.Com: realestate.com.au
Aussie Home: aussiehome.com
Each state or territory has its own Real Estate Institute. The websites of these
institutes will help you form a much clearer picture of the property market in your
local area. Some of the sites will also allow you to search for properties marketed by
institute members.
The website for the different states and territories can be found at:
New South Wales: reinsw.com.au
Victoria: reiv.com.au
Tasmania: reit.com.au
South Australia: reisa.com.au
Western Australia: reiwa.com.au
Northern Territory: reint.com.au
Queensland: reiq.com.au
Australian Capital Territory: reiact.com.a
What Next?
Many South Africans reach these shores in middle age and find that the proceeds from the sale of their South African homes do not go very far when converted into Australian dollars. If you are in this position you will no doubt regard the rebuilding of your financial health and the improvement of your long term financial prospects as one of your most pressing priorities. One of your first steps in achieving this should be to speak to a competent financial planner who can help you to navigate both the pitfalls and opportunities of the unfamiliar Australian financial environment, including superannuation . Taking the steps necessary to plan properly and on the basis of the best possible information could be one of the most important financial decisions that you will ever make. It is not possible to answer every single question that you may have in a brief such as this. However, it is our sincere hope that we were able to sketch the outlines of some of the issues and strategies that you will have to be aware of as you put down roots in Australia.
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Author: jesssedonovann79
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