Tax on offshore investments

A Fin24 is not sure what the tax implications are when bringing offshore investments into South Africa. She asks:

My father has offshore investments held in Mauritius and would like to distribute these to his four children.

It would amount to about R900 000 each.

What is the tax implication on bringing offshore money back to SA?

Pieter Faber, technical executive: tax law at the SA Institute of Tax Professionals (Sait), responds:
 
The “bringing back” of the investment assets to South Africa does not in itself necessarily result in tax consequences, rather the distribution of such assets to the children.

The facts provided in this case are too few to give a more precise answer, but in principle, natural person taxpayers are liable to pay tax on their worldwide income.

This would include capital gains made on the disposal of their assets which do not constitute personal use assets.
 
The disposal of your father's assets gratuitously to his children for no consideration would result in a donation which would attract donations tax at 20% on the fair market value of the assets, less the remaining portion of your father's R100 000 annual exemption.

The disposal by donation of the assets would also result in a capital gain -that is an amount by which the proceeds exceed the base cost of the asset - where the proceeds are deemed to be the market value of the assets.

This is because it is disposed of to a connected person, namely his children.
 
However, a portion of the donation tax, as pro rata relates to the capital gain realised - that is an amount of deemed proceeds in excess of the base cost of the assets - can be added to the base cost in determining the capital gain.

The actual amount of tax payable would depend on any other capital losses, the person's annual exemption and the taxpayer's effective tax rate.  
 
It should also be noted that where the “asset” constitutes an income stream ceded to the minor child - that is the father retains ownership of underlying asset - the income will be deemed to accrue to the father and not to the minor child.

- Fin24

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