More about single discretionary allowances
While some may regard a single discretionary allowance (SDA) as a free-for-all opportunity to export additional funds overseas, ignoring the strict conditions of this type of allowance can be a very expensive mistake.
The general rule for South African residents making loans to non-residents is that this is only allowed within the ambit of the R1 million single discretionary allowance or a specific Reserve Bank pre-approval. Let’s look carefully at the SDA:
Firstly, when you apply you have to tell your bank what the nature of the transfer is as they have to check that your intended transfer falls not only within the SDA ambit but also that the conditions are being met. Not only does every party have to meet the SDA requirements, but they also need to comply with some basic exchange control regulatory directives, the most important of which are Exchange Control Regulations 2(4) & (5) which effectively state that:
- You may not use the foreign currency you purchase for any purpose other than stated/ declared when you purchased it, and
- If you have purchased foreign currency and no longer need all or part of it for the purpose you stated at the time of purchase you have to offer it for sale back to the bank you purchased it from.
When you wish to use the SDA you have to declare whether your utilisation is a travel allowance, study allowance, donation/gift, loan, maintenance transfer or a donation to missionaries. This nature of the transfer is reported on the transactional balance of payments (BoP) reporting using different category codes so the Reserve Bank can see whether you, for example, made a donation or took a travel allowance.
- If you transfer a gift or donation it has to be a genuine donation and go to another party who has to be an individual, not a legal entity such as a trust. In addition, SARS is going to want their 20% donations tax on the difference between the amount donated and the current tax free allowance of R100 000. Are you prepared to pay up to R180 000 in tax?
- Making a loan to a non-resident gets reported under a different BoP category than a donation, but a loan implies repayment.
- In the case of a travel allowance, if you do not spend all the funds on holiday expenditure you may not keep the funds offshore or buy offshore assets.
- To take the SDA as a study allowance requires presenting evidence of full-time studying offshore.
- To make a maintenance transfer, you need to produce documentation that this is to a family member living abroad and they are “in necessitous circumstances”. This means, for example, a letter from an overseas civic official.
The question you need to ask yourself if you’re trying to use this dispensation for something it was not intended to, is: “Do I want to find myself in a position where I’m going to have to pay a hefty penalty if I’m caught later?” Tread carefully!
XConsult, in association with Exceed, can assist clients with applying for Reserve Bank approvals. For additional information please contact Michael Heath on tel. 021 403 6322 or 082 326 8480 or e-mail email@example.com or Sonja Frank on tel. 021 882 8140 or e-mail firstname.lastname@example.org