[FAQ] Assets disposed of in foreign currency

[FAQ] Assets disposed of in foreign currency

• 03 February 2021
• Individuals Tax
• Piet Nel

Background

If a taxpayer has money overseas and bring it back to South Africa, will he/she be taxed on exchange differences?

Answer

The Income Tax Act

You are reminded that SAIT's technical query system policy prescribes that only guidance should be provided in relation to requests submitted.  To do otherwise would cause SAIT to compete with its own members.  Guidance implies that sources or references relevant to the request are provided, but that ultimately the tax practitioner’s own professional judgment is required to be applied to the specific circumstances.   SAIT can therefore not confirm as you require. 

You need to determine the nature of the asset (it may not be currency, but a deposit or investment (in money).  We accept the taxpayer is a natural person. 

Paragraph 43(1) applies where a natural person or a trust that is not carrying on a trade disposes of an asset for proceeds in a foreign currency after having incurred expenditure in respect of that asset in the same currency.  The capital gain (or capital loss) on the disposal is then determined in that currency and that capital gain or capital loss must be translated to the local currency by applying the average exchange rate for the year of assessment in which that asset was disposed of or by applying the spot rate on the date of disposal of that asset.  No exchange differences will then apply. 

If the person disposed of an asset (other than a disposal contemplated in paragraph 43(1)) for proceeds in a foreign currency after having incurred expenditure in respect of that asset in another foreign currency.  That person must then, for the purposes of determining the capital gain or capital loss on the disposal of that asset, translate-

(a)   the proceeds into the local currency at the average exchange rate for the year of assessment in which that asset was disposed of or at the spot rate on the date of disposal of that asset; and

(b)   the expenditure incurred in respect of that asset into the local currency at the average exchange rate for the year of assessment during which that expenditure was incurred or at the spot rate on the date on which that expenditure was incurred. 

See the SARS CGT guide for more information

Webinar Commentary

Further webinar commentary on High-Net-Worth Individual 2020 can be accessed here.

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