Know Your Money with Bronwyn Waner and Craig Finch
Know Your Money with Bronwyn Waner and Craig Finch
58. Sending Money Overseas and Growing Investments Abroad
Ever wondered how your mind and wallet are connected? Crack the code with us as we unravel the psychological ties to financial decisions alongside Ashley Cluver from Merchant West Incompass. Together, we tackle the complex journey of international money transfers and dissect South African financial laws that dictate the process. Get ready to be enlightened on how you, as a South African resident and taxpayer, can navigate the seemingly daunting world of offshore investments, making the most out of your annual allowances and understanding the nitty-gritty of dealing with SARS and the South African Reserve Bank for heftier sums.
Ashley Cluver shares her wealth of knowledge, illuminating the lesser-known aspects of foreign exchange transactions that could make or break your international financial ventures. For those taking bold steps with their wealth, Ashley simplifies the intricate procedures for moving money beyond the 1 million rand discretionary limit. Gain practical insights into setting up a treasury account, uncover the hidden benefits compared to traditional banking, and learn how to ensure your hard-earned money works as tirelessly abroad as you do at home. This episode isn't just about the figures; it's about empowering you to confidently manage and grow your global investments.
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www.growthfp.co.za
Welcome to Know your Money, where we will explore our relationship with money and how the psychology of it impacts our financial decisions, as everyone thinks about money differently. In our podcast, we'll be presenting a variety of financial topics in an easy to understand way, which we hope will assist you with managing your money. Hello everybody, welcome to Know your Money. Warren Craig, how are you guys today?
Speaker 2:Hello Bronwyn, hello Craig, how are you? I'm well, very good, thank you. Always good to see you, warren, never a chore, it's a pleasure, never a chore. How are you, Bron?
Speaker 1:Good, thank you, good, aren't you?
Speaker 2:Yes, all good, thank you.
Speaker 1:We have a guest today, Ashley Cluver from Merchant Westing Compass. Craig, do you want to explain a little bit about what Inc Compass is and Ashley can introduce herself.
Speaker 2:Yes, well, welcome Ashley, nice to see you.
Speaker 3:Thank you so much for having me.
Speaker 2:So our practice makes use of Merchant Westing Compass as our international money transfer. So when clients wish to invest money offshore that's money leaving South Africa You're allowed to. As a South African resident, you are allowed. A taxpayer, you're allowed to transfer one million rand of discretionary money offshore without approval from SOAS. That gets that's. Every bank has that license and even some of the finance houses have it. That does include your online purchases and your travel. So it's a discretionary amount that you are allowed to invest offshore. That means physically leave South Africa, leave your South African bank account and goes into an international bank account. You are allowed, and thereafter you also allowed up to 10 million rand and anything over 1 million to 10 million. You need approval from SOAS and that's where Ashley comes into the picture and Ashley can explain a bit more about how you've helped our practice.
Speaker 3:Perfect, thank you. Yes, so we do do the international money transfers for single discretionary allowance, which Craig did say was for your investments onto offshore platforms or into other bank accounts. We also assist individuals to actually apply to SOAS on their behalf for the approval for international transfer, which is anything up to 10 million rand, and that's per calendar year.
Speaker 2:Is that the tax clearance that you?
Speaker 3:get.
Speaker 2:Correct. You actually help with that whole process or the admin around at the paperwork, Correct?
Speaker 1:yes, we do. And what happens if they wanted to do more than 11 million?
Speaker 3:Very good question. We have a lot of people wanting to do that, and that's then called a special clearance.
Speaker 3:So, we would approach SOAS first. Same process, same source of funds, documents, depending on how the capital was derived. Once SOAS approves that, we then go to the South African Reserve Bank and get their approval. We do need to supply them with a letter of motivation when is the money going? What are the kind of returns going to be? Is the money ever going to come back? What type of investment are they looking at doing so that SOAB can actually look at that application and consider it on its merits and then grant the approval?
Speaker 2:SOAS is a reserve bank, correct.
Speaker 1:And then like Is there any cost, like if it's over that 11 million for the clients.
Speaker 3:Yes, generally the banks that we go through do charge a fee and it's usually about a 3,200 grand plus that application fee. I've not actually seen that being invoiced yet. Oftentimes, if we're actually doing the forks on those transfers, the bank doesn't invoice that over and above because they make their spread on those transfers.
Speaker 2:So we've got a client that's got 800,000 rand. They need to buy pounds or dollars or euros. We call you up and then the 800,000 rand goes where.
Speaker 3:So that's a very good question. We do open a treasury account for the client in their own name. They would add that account as a personal beneficiary on their transactional banking and EFT their desired amounts to that account. Why wouldn't?
Speaker 3:they just stay with the bank. So banks fall under a different banking act, whereas we are part of the phase act, which is the financial advisory and intermediary services act. We've got to actually disclose all the fees that the client will be paying. Where the banks act doesn't have to disclose all the fees, they will give you their fees, but they are far more inflated. If you're going through a treasury outsourcer via an intermediary such as yourselves, you will get discounted rates with us. So, for example, anything a million and below you'll be paying 0.55%, that's on the exchange rate, and for anything above a million up to 10 million, you'll be paying 0.50% on the exchange rate.
Speaker 2:So I transferred 800,000 rand into the separate account in my name. Is it a money market account? Is it a? What kind of an account is it?
Speaker 3:So it's a call account, the interest of which is calculated by the four best performing money market funds in South Africa.
Speaker 2:So if I leave the money there for a month or two, I'm going to get some interest on that money. Let's say, I'm not sure what the dollar exchange rate is. I think it's going to go get worse or whatever. I'm thinking I better wait with this money. Can I leave it there in that money market account and you'll give some interest?
Speaker 3:Absolutely so it does earn interest at the moment. Today, what the rate is is 8.13% Yard. Is it's not bad at all, so that money can earn interest sitting in there waiting for when you're ready to exchange?
Speaker 2:Then I'll phone you and say, right, I'm ready to go, I want to put it into my Alangrao or my 91 or my momentum wealth, international investment. And then what happens then?
Speaker 3:So at that point the traders will quote you a rate of exchange and again our transfers are discounted. So up to a million rand. So from our pretty much our minimum is 50,000. Up to a million rand is 0.55% on the exchange rate. That includes the banks fee as well as ours and the swift fee. Anything over and above 1 million, we charge 0.5% on the exchange rate and no additional other costs.
Speaker 2:So exchange rate that day, you take off a percentage points or whatever, and that's what happens. Then you purchase the dollars and you send the dollars to Alangrao or to 91. Correct.
Speaker 3:Yeah, so we would get the investment account details from the financial advisor, including the specific reference. Then our team actually does the balance of payments reporting via the bank, their exchange control division, which reports everything to the South African Reserve Bank. That money would go into dollars. We would transfer it via that balance of payments form and it would then land on the platform and we'd get a swift confirmation of payment for that.
Speaker 2:I think my experience has been that my clients have gone directly to their own personal banks. Whether it's a private bank or a special arrangement, the rates that you are able to offer them are far better, and that's why we're using your services.
Speaker 1:Absolutely, and why wouldn't you go directly to Alangrao 91?
Speaker 3:So they are investment houses. They don't usually have agreements with a bank. They would have to open up a Treasury, arts or Single License and apply through a bank to get that kind of license up and running.
Speaker 2:So Alangrao have got that. So Alangrao, under a million, have got that in by them. It's easy for us to deal with them under a million because you put them the RANDs into their account and they do the transfer.
Speaker 1:But then it's on that day and you can't wait.
Speaker 3:Correct, then there's no discretion on the exchange rate, but they do have that functionality yeah.
Speaker 2:What is the Treasury account? When you said you open a Treasury account on my behalf, if I'm doing it, what is that?
Speaker 3:Good question. We call it a Treasury account. It is a money market account. We don't necessarily want people to think that this is now a transactional account with Investec or Capitech. It does not come with a card, it doesn't come with online banking. It is merely an account under our banner as the Treasury Outsourcing Company. So that's why we call it a Treasury account.
Speaker 2:So Warren, they get an institutional rate on the money market rates so you enjoy that rate, the big pool of money that they've got. You get the rate there, but you get a money market account open in your name but it's not a transactional account so you can't use it to purchase anything, have a card or anything.
Speaker 2:So you can only directly transfer it. And now to other accounts from it, yes, and then you can hold the money. So what was Bronwyn was saying? You know, sometimes you want to check what the rate is. Is a dollar rate better now, in two days time? Yeah, and you can leave your money in that account. But while it's in that account it's earning interest, so you're not not getting interest. And there's an issue as well with calendar year and tax year. Just explain that to our listeners. What do you mean by that?
Speaker 3:Okay, perfect. So generally, with your allowances, you are given these one million slash 10 million allowances within a calendar year, so it's 1st of January to 31st of December, so it does not have to do with your tax financial year. The only time that the tax financial year comes into play is when you are giving sales, your assets and liabilities. When you're doing that, sales tax clearance for the approval for international transfer up to 10 million.
Speaker 2:So is the 10 million still part of the calendar year.
Speaker 3:Correct. Yeah, so good question. Because a tax clearance or an approval for international transfer is up to 10 million and it is valid for one year from date of issue, but then your actual allowances in the calendar year still prevail. So you can get 10, 10, 10 million tax clearances as long as you limit yourself to only that 10 in that calendar, unless you get some approval for more.
Speaker 2:So if I get it, if I want to do four million and the approval is one December this year, it'll go to 30 November next year.
Speaker 3:Correct, and I'm so glad you said 30 November, because even on the actual form it says one December, but in reality it is the night before, so you have one less day technically.
Speaker 2:So I've got until that period of time. I can't do this year because say I can only do. Well, can I do this year? Can I do my 10 million this year?
Speaker 3:You absolutely can, even if you do this year or can I do 5 million this year?
Speaker 2:Yes, let's say I get 10 million approval, I can do 5 million this year and then wait until February next year or March next year to do the other 5 million, because I've got the approval that SAAB gave me over the year, correct?
Speaker 3:So the only time that that approval for international transfer or the pin later that you actually get from SARS, the only time that that actually doesn't work is if, for whatever reason, you fall out of being tax compliant, so say, you've done it's now February or whatever the case may be and you've done your tax return at July and you owe SARS 2000. As soon as you are not tax compliant, that SARS pin or the international approval letter now falls into the non-compliant category. So then you clear that correct, and then it's then again compliant.
Speaker 2:But any money, international money, leaving South Africa to another geography, another currency. You're all. You're able to do it one January to 31st December in a million and 10 million cash correct Correct.
Speaker 1:And then if I want to bring it back, does it have to go through that accounts again?
Speaker 3:It can. So a lot of clients do forget that they can use this account for international transfers into and out of South Africa. Okay, if they're using their treasury account with us or via treasury outsourcer like ourselves, they will then get better exchange rate on the internal transfer as well, because that account is in their name. The official platform does pay into any account in the client's name.
Speaker 2:So the money comes into South Africa, goes into that special capital or invest account, correct? And then you do the transfer, the once again the conversion from pounds into rands or whatever the conversion, but you're always converted into rands, right, correct?
Speaker 3:Yes, we do have the option where invest offer a foreign currency account in dollars. That's quite a versatile option when clients want to either transfer rands but they want to wait, or transfer portions of those dollars into rands at a time, or they want to transfer dollars to convert to other currency to transfer offshore.
Speaker 2:So they hold the money in dollars, correct?
Speaker 1:And then just last question if someone passes away, how is that account?
Speaker 3:treated so it does fall into your estate because it is an account in your name. Your executor will actually find all those bank accounts because of common reporting standard, so I will know about that account and they will come find it.
Speaker 1:So it's a normal savings kind of account link to you, so it's like no beneficiary on it.
Speaker 2:Yeah, part of the will Correct.
Speaker 1:Yeah, anything else Warren.
Speaker 2:Very quite this episode Very interesting. I haven't got anything to add.
Speaker 1:Awesome, no questions. Well, I think actually you explained it. Yeah.
Speaker 2:Very nicely, thank you.
Speaker 1:Thank you Awesome stuff.
Speaker 2:Good to see you. Have a great rest of the week, absolutely. Cheers guys, cheers everybody. Thank you for listening. If you have enjoyed this podcast or like to subscribe, please visit our website, wwwgrowthfpcoza. The information we have provided in this podcast is our personal opinion. For more detailed information, please discuss your financial situation with a financial planner.