When the tax and exchange control amnesty for illegal offshore funds was first announced, Personal Finance undertook to ensure that your questions about the amnesty were answered by the South African Revenue Service and the South African Reserve Bank. The delay in the amnesty legislation delayed the replies to your questions. However, the law was passed shortly before the amnesty began on June 1. Two weeks ago, we published the answers to some common questions about the basics of the amnesty. This week, we publish SARS and SARB's answers to your questions relating to unspent travel allowances that have been left overseas.
Q
Is money taken out of South Africa through a travel allowance and not spent overseas, but left there in a bank account or with relatives, regarded as grey money? And must you declare it if you intend leaving it there for later use?
A
Yes. The unspent allowance was not brought back into the country, as it should have been. The amount must be declared for amnesty purposes. If the amount was left with relatives, this may complicate matters for an applicant. In terms of the amnesty legislation, the applicant must have direct beneficial ownership of the funds or assets as at February 28, 2003. The applicant will, therefore, have to prove to the satisfaction of the amnesty unit that the amount left with relatives is still his or hers.
Q
Is it true that if the unauthorised amount you have offshore is less than R750 000, you do not have to pay an exchange control amnesty levy, but must still apply for the amnesty and declare the money?
A
This is correct, provided that none of the R750 000 foreign capital allowance has been used. Where part of the allowance has been used, only the unused part may be deducted when calculating the levy.
Q
Is it true that if the amount you have offshore is less than R750 000, you can keep the money offshore or repatriate it without incurring the amnesty levy?
A
This is correct, assuming you have not already used the offshore allowance.
Q
If the amount you have offshore is more than R750 000, you can keep the money offshore or bring it back on the payment of the amnesty levy?
A
This is correct. Assuming that you have not used your R750 000 offshore allowance, if your unauthorised holding is more than R750 000, a levy of 10 percent will be payable on the amount you do not repatriate that exceeds R750 000. You will pay a five percent levy if you repatriate more than R750 000.
Q
Can people still add future unspent travel allowances to their offshore bank accounts?
A
No. Unspent travel allowances should not be used for investment purposes. The normal exchange control channels should be followed.
Q
If you left all or part of your travel allowance overseas with a view to using it to educate children overseas, must it be brought back to South Africa and sent out again?
A
No. It must however be declared and a levy may apply.
Q
If you left all or part of your travel allowance overseas and used it to buy time share, must it be declared?
A
Yes. The time share is derived from unauthorised assets.
Q
An individual used unspent traveller's cheques to open a fixed deposit bank account in Britian, now worth less than R120 000. Later he or she applied for permission to use his or her full offshore allowance, but only used part of it to invest R100 000 in offshore unit trusts. These unit trusts have subsequently been sold and the money repatriated. Is the money in the bank account illegal and must the investor apply for amnesty? If South African tax has been paid on the interest earned and the interest has been re-invested, will the taxpayer still be liable for capital gains tax (CGT), and if so, how will this be calculated?
A
There are two separate sets of transactions here. The first deals with the traveller's cheques that were used to open a bank account. The bank account is derived from unauthorised assets and must be declared. The unit trusts were, however, purchased with authorised funds, presumably in accordance with exchange control regulations, and therefore no exchange control amnesty is required. As interest on the bank account has been declared for tax purposes, income tax relief will only be required if the income used to purchase the traveller's cheques was not declared when it was earned. As far as CGT is concerned, the normal rules apply. Thus a capital gain or loss will usually arise when the amount is converted to another currency or disposed of. It will be equal to the foreign exchange gain or loss from March 1, 2003 (or the later date of the acquisition of any additional foreign currency assets) to the date of conversion or disposal. Average exchange rates for the relevant tax years are used for this calculation.
Q
Is it necessary to declare money that has been taken out of South Africa through exchange control-cleared travel allowances and deposited in an offshore account that earns very little interest?
A
Yes. As noted above, an exchange control offence has occurred and, if the interest that has been earned has not been declared, so has an income tax offence.