I’m planning on emigrating to Canada. I’m 28 turning 29 this year and currently the only one receiving an income. Is it financially wise to invest in property first before leaving? I’m saving about R1 500 per month for both my retirement and an emergency account, both of which I intend to use for our emigration. My husband is starting his farming soon but on a small scale and my son is only three years old. We plan on emigrating when he has to go to school. My salary at the moment is about R24 000 per month.
I have assumed that when you mention investing in property before leaving, you are referring to investing in South African property before leaving for Canada. I have further assumed that you will be emigrating to Canada in three years’ time.
With regard to cashing out your retirement annuity on emigration, note that you will need to break South African tax residency for a period of three years before you are able to withdraw the funds in your retirement annuity. Breaking tax residency means cutting all ties with South Africa by financially emigrating from this country. This means that you would not own any assets in South Africa nor receive income from South Africa.
Financial emigration from South Africa can be a costly exercise, and you would only be able to break your tax residency after spending three years in Canada.
If you only plan to emigrate in 2024 and need to spend a further three years in Canada before you can financially emigrate, this means you will only be able to access your retirement funds in six years’ time, bearing in mind that you will be taxed as per the withdrawal tax table below.
Although you will continue to benefit from a tax rebate on your investment premiums over the next three years, the funds will only be accessible once your South African tax residency is broken, and it is important to keep this in mind when calculating how much you require to emigrate.
|Taxable income (R)||Rate of tax (R)|
|1 – 25 000||0%|
|25 001 – 660 000||18% of taxable income above 25 000|
|660 001 – 990 000||114 300 + 27% of taxable income above 660 000|
|990 001 and above||203 400 + 36% of taxable income above 990 000|
In light of the above, it is important to note that the only funds that will be available on emigration are your emergency funds.
As such, you should ensure that you have sufficient funds available to cover the costs of the full emigration process, as well as set up costs in Canada.
You will no doubt require as much liquid capital as possible when emigrating and it is therefore not advisable to tie your capital into South African property.
There are also many upfront costs associated with purchasing a property that need to be factored into the equation.
You also face the risk of not finding a suitable buyer for your property when you need to realise the asset. As property appreciates in value over the longer term, one can only expect to realise returns if you own the property for a longer period of time, which is not the case in your circumstances. Holding on to a property for a three-year period is considered short-term and would not be worth it after taking into account the upfront costs and risks of not being able to sell the property timeously.
Remember, when you emigrate financially from South Africa, this triggers a deemed disposal of all your local assets and you will be required to pay capital gains tax (CGT) on the market value of your property.
Similarly, farming is a long-term investment and there are many start-up costs that need to be taken into account. It is not advisable to channel too much of your capital into a farming initiative if you only intend to farm for a three-year period.
Our advice would be to begin accumulating Canadian dollars, which will mitigate your currency risk through rand cost averaging. As a result, once you have emigrated, you would have already exchanged rands for Canadian dollars.