We ask experts to answer your financial queries. Email your queries to [email protected] or fax to 021 488 4119. Feature sponsored by Old Mutual Wealth.
I WANT TO INVEST OFFSHORE DIRECTLY
How can I invest directly in the shares of companies listed on foreign stock markets?
MJ Latsky
Chris Potgieter, the head of private client securities at Old Mutual Wealth, replies: With the rand’s precipitous decline against most major currencies, South Africans are increasingly becoming aware of the need to invest globally.
The South African economy contributes one percent to global gross domestic product and the JSE represents a mere fraction of what is available globally. The combined market capitalisation of all South Africa’s listed companies is marginally higher than the market capitalisation of one United States stock: Apple.
Apple is an example of several large-cap shares available to individual investors. Offshore investments allow investors to diversify their portfolios across geographies, sectors, companies and currencies.
Although many unit trust funds in South Africa provide offshore exposure, an increasing number of astute investors are choosing to invest directly in offshore companies. A few companies have dual listings on the JSE (for example, BHP Billiton, Richemont and British American Tobacco). However, these represent a fraction of the investment opportunities available globally.
You can access global shares through South African stockbrokers and private client portfolio managers. There are also a number of share trading platforms that enable you to buy shares on any of the major exchanges. Old Mutual Wealth offers such a share trading platform as well as an advisory and portfolio management service to guide you.
You can decide whether you want to acquire the shares with your offshore funds (that is, from your offshore allowance) or by using the rand to buy shares through what is termed an asset swap. In this instance, a South African institution buys the shares on your behalf in the foreign currency.
The cost of buying global shares has come down significantly and is now on a par with the cost of buying shares on the JSE. You can expect to pay brokerage, securities tax and custody fees similar to those on a local account. It is advisable to consult a licensed and reputable portfolio manager or stockbroker before venturing offshore.
ROLL-OVER RA CONTRIBUTIONS
I have excess retirement annuity contributions to the value of R407 000, which have been rolled over during the past few years. My questions are about changes to the Income Tax Act that came into effect on March 1, 2016.
* Will the rolled-over amount still qualify for the current 15-percent tax deduction at the end of 2015/16 tax year?
* If it does, will the balance be rolled over to the 2016/17 tax year?
* If it is rolled over to the 2016/17 tax year, will the balance then qualify for the 27.5-percent tax deduction in the following years?
* If the R407 000, or what is left over after the 2015/16 tax year, does not qualify for rollover to the 2016/17 tax year, will it form part of my estate when I die?
Name withheld
Jason Garner, area manager at Old Mutual Private Wealth Management, replies: I am sure, as with any change, there is lots of confusion surrounding the retirement reforms introduced this year and the proposed future reforms.
The so-called T-day retirement reforms were introduced on March 1. From that date, members of retirement annuities, pension funds and provident funds could claim as a deduction 27.5 percent of the greater of their “remuneration” received from their employers or their overall “taxable income”, subject to an annual limit of R350 000. Any contribution that exceeds these limits will be deemed to have been made in the following tax year and the same deduction regime will apply.
Therefore, any excess contributions will still be deductible, subject to the maximum amounts allowed, in the 2015/16 tax year, where the 15-percent maximum regime applies. Any amount remaining thereafter will still be deductible in the new 2016/17 tax year, where the new 27.5-percent regime applies. After that, any remaining amount will continue to be rolled over for future years, as it had in the previous regime, provided, of course, that there are no changes in the future.
As regards the portion that forms part of your estate, recent changes mean that any disallowed portion unused at the date of your death is included in your estate. However, the portion of the amount used to reduce the taxable amount of any compulsory annuity purchased from a retirement fund will not be included in your estate.
Given these changes, it is critical that you re-examine your financial plan and goals to ensure that sufficient savings are invested into an appropriate inflation-plus strategy to achieve long-term goals within your desired risk tolerance, and to ensure that the vehicle chosen is appropriate, taking into account tax, liquidity, investment term and other factors.
WHAT TAX ON MY SEVERANCE PAY?
My former employer paid me two months’ severance pay. This was included in my taxable income and taxed at my maximum tax rate. Is this amount not regarded as being of a capital nature, not income, and therefore taxed at a different rate?
MJ Latsky
Jason Garner, area manager at Old Mutual Private Wealth Management, replies: Unfortunately, any amount received from your employer is regarded as revenue, not capital. The Income Tax Act requires that severance pay is taxed according to the same table as your retirement fund lump sums, either on retirement if you have been retrenched or on withdrawal if you have resigned, and not at your marginal rate of tax (see severance benefit tax table, link below)
The only “grey” area is whether leave pay that is included in severance pay should be taxed as in the table or at your marginal rate. The South African Revenue Service appears to tax pay in lieu of leave at your marginal rate.
WHAT TAX ON MONEY LEFT TO ME?
As a beneficiary of a deceased estate, I was told to retain for tax purposes the first and final liquidation and distribution (L&D) accounts and the final cash distribution statement.
What must I declare on my ITR12 form for the 2015/16 tax year, with particular reference to the line items below? Does this change if there was a cash surplus, rather than a cash shortfall, in the L&D account?
The cash shortfall brought forward from income and expenditure (L&D account) was (minus) R40 000, the interest brought forward (final cash distribution statement) was R3 000, and the amount carried forward from the capital account (final cash distribution statement) was R150 000, giving a total of R113 000.
Name withheld on request
Alida Brink, fiduciary specialist at Old Mutual Wealth, replies: You will have to declare any inheritance that is generating an income – for example, if you inherited a property that you are now renting out, you will have to declare the rental income.
If you sell any assets you inherited (for example, a house or shares), you will have to use the amount on the L&D account as the base cost of the asset and you may be liable for capital gains tax, depending on the amount of the gain.