Know Your Money with Bronwyn Waner and Craig Finch
Know Your Money with Bronwyn Waner and Craig Finch
106. Understanding Annuity Tax Implications for International beneficiaries and clients who emigrate.
Discover how to navigate the intricate world of living annuities, for clients who change their tax residency or emigrate. With her expertise, Felicia unravels the complexities faced by beneficiaries living abroad after losing a loved one in South Africa. She's here to guide you through the essential options and implications that come with receiving annuity income while residing overseas.
Learn how to handle cross-border financial transactions with confidence as we discuss the role of authorized dealers like RMB in transferring funds internationally. Felicia sheds light on the potential pitfalls of double taxation and the significance of understanding local tax laws. Whether you're a beneficiary abroad or advising clients with international financial concerns, this episode provides you with valuable insights to manage these challenges effectively. Join Craig Finch, Bronwyn Waner, and Warren Grimsley as they make these complex topics accessible and understandable, ensuring you're equipped for the global financial landscape.
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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.
Speaker 2:Hi, I'm Craig Finch, co-owner of Growth Financial Planning, an independent financial planning practice, and I've been a financial planner since 1986.
Speaker 1:Hi everybody. I'm Bronwyn Wehner, co-owner of Growth Financial Planning. I'm a certified financial planner and our philosophy at our company is to grow yourself to grow your wealth.
Speaker 3:Hi everyone. My name is Warren Grimsley. I'm a director at Rogue Media and help facilitate this wonderful podcast. My main goal here is to try and understand what these two lovely people are saying, so that we can all understand.
Speaker 2:Welcome to Know your Money. Hello, everybody in the studio, felicia, good to have you back.
Speaker 4:Thanks, thanks for having me.
Speaker 2:I see you've got more books with you today.
Speaker 4:So what are you going to?
Speaker 2:teach us today about living annuities. Today, I want us to talk about clients who seize tax residency, clients who immigrate and how they can obtain their annuity income and all the ways that them leaving the country, how it affects their policies. Can we also chat about clients who pass away in South? Africa, parents and their children are the nominated beneficiaries, but the children are living abroad. Wherever they're living, yes, Can we start there?
Speaker 4:How has that paid out? So, as we had said in our previous chats, a beneficiary has an option to receive a cash lump sum or they can open a new living annuity in their own name, or a combination of both. So, even though those beneficiaries are overseas, they still have those options, even if they've ceased to be tax residents. Even if they've ceased to be tax residents, yeah, they have those options. So most of them, obviously, they don't want the hassle of having to earn an income in South Africa and potentially then having to pay tax on that income. They would then rather receive those proceeds that death benefit as a cash lump sum, and we can facilitate payment for that into their offshore bank accounts.
Speaker 2:So somebody's living in Australia, a child, the parents die in South Africa. They say we don't want an income because we're living in Australia. Now Parents die. Alan Gray will pay it out to the beneficiary. The beneficiary's got a bank or whatever Australia bank account. Do the tax as the you know, the normal tax as per the death tables. Yes, the lump sum gets paid, not to the state-led bank account, but get paid directly to the Bank of Australia.
Speaker 2:To the beneficiary yes, Okay, so we won't wait for it to go through a block-trained account or anything like this. Yeah.
Speaker 4:So there's a balance of payments process that we can use, and we can then remit that money overseas for that benefit?
Speaker 2:What do you mean by balance of payment?
Speaker 4:It's a process where it's done through our authorized dealer. So RMB is our authorized dealer, so they handle that whole process and they have, like specific documentation that they need from the beneficiary in order to then process that money and take that money overseas.
Speaker 2:Okay, but bottom line is that that money after tax will get paid directly to the child living in Australia.
Speaker 4:Yes, directly to that beneficiary Of course, if that child is a minor, they would need the assistance of a legal guardian. But to answer your question yeah, Bottom line is they can get those funds directly.
Speaker 3:And that person living abroad receiving money into their accounts. Is that seen as income?
Speaker 4:No, because that would be a cash. It's a cash lump sum, so they would go through the, as I said, the authorized dealer process, which is also approval for international transfer, so it's not seen as income. Of course, though, other jurisdictions maybe may see it as income, but I can't speak on other jurisdictions. Come, but I can't speak on other jurisdictions. They may get double taxed on that money, if that's what you're kind of asking, weird lands in Australia could find it as this and then tax them again.
Speaker 1:And that's where it is kind of important to know for us. We can really give you a proper this is it you're only going to be taxed in South Africa, or this is it and you'll be taxed again, or you can go the income route, and this is where us, as your choice architect, is important. We've got to lay down the different choices and options for you and you decide how to take it out.
Speaker 4:Yeah, because some jurisdictions do have, like inheritance tax and it's quite hefty and all those things so very important to know.
Speaker 2:So that's death. Now the person's alive and they go and decide to live with their children in australia now and they've got this living annuity paying out their pension and they say, okay, well, I want to, I want the money. I'm going to be living in australia now. I don't want to have my money in south africa. Can they cash it out?
Speaker 4:they can't cash it out, um, unless even if they've immigrated. Even if they've immigrated, so the immigration, uh, immigration laws have no impact really on living annuity. So it's not like an RA where you know if you're over 55 or even under 55 and you've left the country, you have to wait three years and then you can obtain that money. No, it doesn't work like that for living annuity. Work like that for living annuity. So, even if you seize tax residency and you move abroad, you can't cash out, unless, of course, your capital falls below the de minimis amount, which is 125,000. You just have to continue earning that income. Yeah, so you can't cash out, nor can you transfer a South African living annuity abroad.
Speaker 2:Okay, so even though there's a connection with Alengro Australia, there's no ways of moving that product.
Speaker 4:No, there's no way, because legislation deems a long-term insurer to be a South African long-term insurer, so it transfers between South African long-term insurers.
Speaker 1:So then, generally with that sort of client, you'd recommend going up to the 17.5% and getting it once a year, or staying on their thing, but rather getting it as a once a year. It would again be these are your choices, and these are your options. Yes, that's not to say this is 100% right or not right?
Speaker 4:Exactly exactly, and we actually have. I like to call them three buckets of clients when it comes to when we think about um tax residency. So you have a south african tax resident who is it may not be in south africa, but they have not seized their tax residency. That person has to obtain their income into their bank account. We can't facilitate payment into a foreign bank account if you are a South African tax resident.
Speaker 4:If you are a South African temporarily abroad, so you haven't seized your tax residency but you do stay overseas and you have that documentation to prove that, we can then facilitate payment into your foreign bank account, wherever you may be. And then the last bucket is the person who has now ceased to be a South African tax resident, so they've formally immigrated, as it was called back then. And then for that person we can then facilitate payment into their foreign bank account and, as you said, we encourage them to rather take the highest drawdown on an annual frequency. Okay, yeah.
Speaker 1:Awesome, I think that pretty much answers it. And then just a client the other day wanted to know, with regards to a living annuity, can creditors access any of those funds or how does that exactly work? Are they protected in any way?
Speaker 4:Yeah, so the capital of the living annuity is protected against creditors. It cannot be attached, as for debt, to pay debt. However, once you have been paid that income, that income may be attached. So your creditors can attach the income that you receive, but they can't attach the capital.
Speaker 1:So you owe 500,000, you've got a million in your living annuity. They can't attach that. But you get 10,000 around every month. They can attach the 10,000.
Speaker 4:Yes, they can attach that, yeah, so same with also maintenance orders, for example, they can't attach the capital of a living annuity, it has to be the income. Yeah, and that's because in an earlier can't attach the capital of a living annuity, it has to be the income.
Speaker 3:And that's because in an earlier episode you said the capital itself is held by Alan Gray. It's not actually held by the person who owns the annuity.
Speaker 4:Correct the person who owns the annuity only has a contractual right to receive the annuity income. Okay.
Speaker 1:Awesome. It's been so insightful having you here. Thank you for all your time and all these episodes.
Speaker 2:Thank you and your knowledge has been amazing.
Speaker 4:Thanks so much it's been lovely, thank you and I hope it's valuable absolutely thanks
Speaker 2:bye. Thank you for listening. If you have enjoyed this podcast, would 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.