CURRENCY EXCHANGE
How to effectively double your discretionary offshore allowance
I
ANDREW RISSIK
Director of Forex and International Projects at Sable International
t’ s November and you know that means: You have less than two months to utilise your annual offshore discretionary allowance. The end of year rush to move one’ s money may well be further exacerbated by some concerning issues facing the South African economy. Let’ s take a look at some of the risks in the medium-term and see how you can position yourself to protect your wealth from potential shocks.
Local factors
Recent announcements by the Supreme Court of Appeal that President Zuma is once again accused has emboldened the ZAR investors. This has been going on for years, so we should not expect the situation to change anytime soon. In fact, it’ s now imperative( for Jacob Zuma) that a Zuma faction appointee wins the ANC elective conference in a few weeks.
Finance minister Gigaba has also presented the medium-term budget framework. There is nowhere to hide … The treasury has run out of money. SAA needs more money. The SABC requires more funding. Eskom wants a 20 % tariff increase. PetroSA is a disaster, and so the list goes on. This is extremely Rand-negative.
In December there are two likely outcomes of things that are precipitously close to home:
Cyril Ramaphosa will not become the next ANC President. There’ s simply too much for the Zuma faction to lose.
Minister Gigaba will tap the PIC in some way, it’ s a matter of time. There’ s simply no money left in the National Treasury.
Both these scenarios will be bad for the Rand but in the short term we will still see upside from the yield seekers.
Global versus local
The developed world’ s central bankers are becoming slightly more hawkish regarding global inflation. This means developed market rates will go up at exactly the same time as South Africa requires additional funding. That’ s not a great mix. However, it seems that currency traders are ignoring all the warning signs, but I’ m not sure how long it can last.
How the ratings agencies view all this
Should our locally and internationally rated debt sink to junk, we will be in a pickle. The Rand will devalue massively and interest rates will spiral out of control. In this scenario, you are going to want to make sure that both your Rand-holdings and Rand-denominated debt is as low as possible.
It’ s no wonder locals who can invest offshore are starting to get itchy trigger fingers. This is further compounded by the fact that the South African economy doesn’ t look like it’ ll get out of its current low growth slump for the next five years at best; and that’ s if everything goes smoothly from this point on!
How to use the year end to your advantage
You can send R1 million offshore without having to get a Foreign Tax Clearance Certificate, this amount is called your discretionary allowance. Here’ s what you can use your allowance for:
• Monetary gifts and loans: South African resident to non-resident
• Travel allowance: South African resident within 60 days before departure date
• Wedding expenses, if backed up by documentary evidence
• Study allowance, if supported by proof of registration
• Foreign capital allowance or transfers without a Tax Clearance Certificate
These costs make up your annual discretionary allowance and their combined total cannot exceed R1 million per calendar year.
So, how do you use this to your advantage at the year end? It’ s quite simple really. You use your 2017 allowance before 31 December 2017 and then you use your 2018 allowance in January 2018. This allows you to shift a big chunk of wealth offshore without having to go through the rigmarole of securing a Tax Clearance Certificate. What’ s more, if you are married, or have shared investments with someone, you can both make use of your discretionary allowance, bumping the total amount up to R4 million.
56 NOVEMBER 2017 SA Real Estate Investor Magazine