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The Financial Wellness Coach: On retirement savings and living overseas

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Kenny Meiring MBA CFP is an independent financial adviser. You can contact him at Financialwellnesscoach.co.za. Please send your questions to [email protected]

Question: I have been living in Australia for the past two years and am in the process of finalising my permanent residence. I’m still a registered taxpayer in South Africa. I have a preservation fund in South Africa and heard that there is a new law that’s going to force me to keep my preservation fund there for a further three years. Is this true?

First published in the Daily Maverick 168 weekly newspaper.

Answer: There is a change in legislation that will impact on the portability of retirement savings for people living abroad. However, it is not necessarily the case that you will not be able to repatriate your funds for three years. You will see why when I unpack the rationale behind this change and how the new law works.

People leave a country differently. For some it is a clear-cut planned emigration. They sell up all their assets, leave the country and stop being taxpayers in South Africa.

Others emigrate informally. They may go off to another country, stay there for a while, return or move on elsewhere. They still have assets like their preservation funds, rental property and investments in South Africa. At some stage they would “financially emigrate”, where they sell up all their local assets and are seen as being emigrants by the South African Reserve Bank.

It is this concept of financial emigration that will change on 1 March. After this date, you will not be able to move your retirement funds offshore if you were not ordinarily resident in South Africa for three consecutive years.

We need to understand this concept of ordinarily resident.

You are ordinarily resident in a country if your permanent home is there. It is the place you return to after temporary absences.

You do not need to live there continuously – you can be away for several years. Some of the factors that would be considered to determine if someone is ordinarily resident would include:

  • The location of your business and personal interests.
  • The location of your personal belongings.
  • Where you socialise.
  • Where your children go to school.

There are many more factors that are considered but this will give you a flavour of how this concept of ordinarily resident works.

What this new law says is that from the date at which you ceased to be ordinarily resident in South Africa, three years must elapse before you can take out your retirement funds. If you ceased to be ordinarily resident three years ago, you would be able to take out your funds immediately.

Before you remove your funds, give some thought as to whether you should do this. I like to diversify assets geographically. Your new investments will probably be in Australia. Having some funds invested in a tax-efficient vehicle in an emerging market like South Africa can improve the mix of your overall investment portfolio. Get your adviser to do the numbers before you make this call.

You need to be careful when you stop being ordinarily resident in South Africa. Ceasing to be ordinarily resident in SA triggers a capital gains tax event. You are deemed to have disposed of all your South African assets the day before you became ordinarily resident elsewhere. You would have to disclose to the South African Revenue Service (SARS) and the South African Reserve Bank all your worldwide assets (other than your immovable property in South Africa). Forty percent of the taxable gain will be added to your income and you will pay tax on it at your marginal rate. This can have massive cash flow implications. I would strongly recommend that you get a specialist to help you before you make any decisions.

While this may not apply to you, be careful of hiding any offshore assets if you are still a South African taxpayer. SARS is developing the capability through the Automatic Exchange of Information regime to identify any offshore asset that you may not have declared. Rather than run the risk of fines and penalties, bring them into the tax net in a controlled way.

In your case, where you left the country two years ago, you could argue that you ceased to be ordinarily resident at that time. This would mean that you would have already used up two years of the three-year restriction, so you may only have to wait for one year.

I would, however, recommend that you speak to a specialist, as there will be capital gains tax implications. DM168

This story first appeared in our weekly Daily Maverick 168 newspaper which is available for free to Pick n Pay Smart Shoppers at these Pick n Pay stores.

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