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How do I convert foreign income and expenses into rand for my return?
How do I convert foreign income and expenses into rand for my return?
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Direct answer
Foreign income and expenditure reported in a South African return must be converted to rand using a method that is supportable for the applicable tax period and item. Keep the original foreign-currency records, identify the payment or accrual period, and record the rate source and method used. The current ITR12 guide is relevant to the return process, but the Income Tax Act, including section 25D, must be considered before choosing a conversion approach.
Do not use today's exchange rate to translate historic income just because it is easy to find. Do not change methods line by line merely because one method produces a preferred result.
What this means in practice
Build a conversion worksheet that another person can follow. For each item include the income or expense description, original currency, foreign amount, relevant date or period, rate, rate source, rand result and link to the supporting document. Group similar items only where the law and facts support the same method.
The original statement matters. A broker report, foreign payslip or rental agent account can contain gross income, foreign tax, bank fees, reimbursements and capital transfers in one currency total. Convert each relevant item only after it has been classified. A rate cannot correct a wrong classification.
Section 25D is technical and can affect which rate or average is appropriate. The correct approach can depend on the type of amount, period and taxpayer's circumstances. Use a current source and obtain advice where the issue is material. The ITR12 layout can also change, so preserve your workings rather than relying on a past return screenshot.
Step-by-step
- Preserve original foreign documents.
Download payslips, bank statements, broker vouchers, rental reports, invoices and foreign tax certificates in their original currency.
- Classify each amount first.
Separate income, expense, foreign income tax, social-security contribution, reimbursement, capital transfer and gain. Do not convert an unexplained net total.
- Identify the relevant date or period.
Record when the income accrued or was received and when an expense was incurred. Identify the South African year of assessment.
- Select and document a supportable method.
Check section 25D and current guidance. Record the rate source, publication date and calculation, including any average used.
- Reconcile the annual totals.
Compare converted totals to the original foreign statements. Investigate rounding, missing months and duplicated transactions.
- Retain the schedule with the return.
Keep the worksheet, rate support and underlying records after filing in case SARS requests verification.
Documents and records to keep
- Original foreign-currency statements, vouchers and invoices.
- A dated conversion worksheet with rate source and method.
- Foreign tax certificates and separate evidence of taxes paid.
- Return-year reconciliation and explanations of material differences.
- Filed ITR12, assessment and SARS correspondence.
Important limits and exceptions
This guide does not prescribe one exchange rate for every taxpayer or item. Section 25D and the facts can require a more detailed analysis. A tax practitioner should review material foreign employment income, investment portfolios, rental properties, several currencies or a changed method.
Currency conversion is separate from residence, treaty relief and foreign-tax credits. A correct rate does not establish that an item is exempt, deductible or creditable.
Use sensible file naming and version control. Keep the unaltered downloaded statement, a working calculation and the final schedule submitted with the return. Where a foreign institution later revises a statement, preserve both versions and explain the change. A brief note explaining the rate source and the reason for the selected method is better evidence than a spreadsheet that contains only a rand answer. This also prevents accidental conversion of a prior-year amount a second time.
Review any material roundings at the annual total level and retain formulas, not just manually typed results.
If a rate source is unavailable, document that fact and seek suitable professional guidance before filing.
When to get tailored advice
Get advice if you need an election analysis, use several currencies, have an offshore business, hold foreign investments or are claiming foreign tax relief. TaxProof can prepare a clean, documented conversion schedule for review.