Large sum of money transfer from parents questions

[sharkalopodous]

We own a house in CHCH NZ but are stuck in EQC battles and would like to purchase another house for our growing family and sell our current one once the EQC stuff is sorted.

My mum has offered to transfer us 500k to purchase a new house and we would pay her back instead of a bank. She would be transferring the money from Canada. Has anyone done something like this? Are there any tax implications or legal implications as she is transferring us the money, rather than us transferring it overseas from our own account?

The new house would be in our name etc.

[Auckland2016]

The bank should question the source of the money because it needs to make sure it is not money laundering.

[Super_BQ]

My mum has offered to transfer us 500k to purchase a new house and we would pay her back instead of a bank. She would be transferring the money from Canada. Has anyone done something like this? Are there any tax implications or legal implications as she is transferring us the money, rather than us transferring it overseas from our own account?

Hello fellow Cdn, I myself am an expat Cdn that is ALSO living in Chch. In fact i've recently purchased a house in Chch and getting the full conveyance treatment from all these AML rules. It is not as straight forward like before. Typically, in any land dealings that involve accountants, lawyers, banking staff, and property conveyors, the biggest change i've noticed is they need to SEE you in person. In the past the AML were not effective because various entities such as trusts / shadow companies or conduit holding trusts could flirt around previous AML laws internationally without raising an eye with the tax dept. That's because internationally, the laws in each nation can not span into other sovereign nations (unless you're the IRS).

When you go to purchase your home, the conveyor or lawyer will ask (as part of new AML requirements) where the source of the funds are coming from. Not particularly from a bank but specifically, how did you come in hands with the funds. Let me quote what my conveyor asked me recently:

Conveyor: "As part of my AML requirements I am required to obtain proof from you as to where the funds are to purchase are coming from. Can you please advise and provide evidence."

Me: "The full settlement amount will be paid in savings from our BNZ account via online direct credit. Since the funds are coming from a NZ bank account (which normally complies with AML), what other proof would you require? "

Conveyor: "How did you acquire the funds? Savings, sale, inheritance, other?"

Me: "Savings. To more specific, they were after taxed earnings from my self employed income."

So as you can read, the AML are very specific on the nature of the funds despite I mentioned the word "Savings" 2 times. Generally speaking any funds coming from a NZ bank will have no problem regardless of how long they've been sitting in an account. Actually the AML laws came in (if I recall correctly) way back in 2002 and all banks are required to questions the source of the funds for deposit (but in NZ it was just recently revised). It's the same in Canada. If you bring in $5000 cash to the teller, they're going to ask where it came from. But if your were a bank like HSBC in Mexico, drug lords like el Chapo had simply brought garbage bags full of cash to the HSBC branch (literally walked through the front door) and the funds were deposited without question. Even as far as I can remember in Canada, no brokerage firm could accept any cash ; any funding towards a brokerage account HAD to be funded via a cheque (which is drawn from a bank) or online bank transfer. However, as the explanation I gave to my conveyor above; it seems they require a black and white answer instead of simply saying the funds are coming from a bank. I have a feeling they take this information and it's entered into IRD's computer for indefinite record keeping (ie options to choose are either from 'savings', 'bank loan', inheritance, etc).

On the international front, many OECD nations have subscribed to the new CRS (Common Reporting Standard). That is foreign nationals living abroad with bank accounts in other countries. Those banks are required to ask tax identification so they can share it with their relating tax dept. This all started with the US when they implemented FACTA several years ago where US-expats living abroad, meant their banks were required to disclose their US-citizens bank accounts to the IRS (unless the person formally renounces their US citizenship ; a process leaving many into tears). The CRS is a similar form of FACTA however, it's interesting to know that the USA does not have CRS (meaning they don't comply to OTHER country tax requirements and none of those banks care to record keep such information. This means foreign nationals can open a US bank account without any fear of them forwarding such information to the country where they came from.

So, how does this relate to your mom sending $ to you in NZ? You did not mentioned how your mom was sending those funds to you? Assuming it was going to be wire transferred, then it should pose no problem ; but at the time of conveyance on your new home, you best to put down the source of funds were 'gifted'. Since both NZ and Canada have no gift taxes, this shouldn't pose any problem. Now if your mom were to send the funds in a form of a bank draft or cheque, then the NZ bank would have to question it. Of course you could simply say it was a $ gifted from your mom. It's kinda the same process when you declare more than $10,000 of currency at the airport when flying in, you fill out a simple form and it asks the same question (where did the funds come from....).

My father would joke about this every time the subject of declaring where the funds would come. He would say jokingly, "from drug money", just to see the response of the bank teller. Really he's right in that these questionings do nothing to deter money laundering. It may deter the 'small guy' but to those in power and with status, the AML don't really do anything to stop them from hiding untaxed incomes around the world. A person can always say the funds were a gift and the bank would accept it. I mean really, who in their right mind will honestly tell the bank teller that my $5000 is from drug money, or I was paid this under the table for some employment I done. So my father's sense of humour says that all these new regulations are ineffective.

[diallta]

Firstly, I'm not a financial advisor, but I will throw in my "two cents."

I recently transferred some money to my wife's NZ account (not a joint account--we don't and won't ever have any jointly held assets) from an overseas account and no questions were raised by the bank. She now has the money invested with the bank in NZ, and again, they didn't ask where it came from. When time comes to make a purchase, then the anti money laundering questions might arise, but so far it's been quiet.

I will caution you to closely examine the situation with regards to taxation, however. In our case, genuinely, the money was a gift from myself to her, which means that there is no expectation that I be paid back and thus there is no gift tax to be incurred in NZ. But, if there is an expectation that you are paying your mom back, then the rules might be different since it isn't strictly a gift--I don't know. You must also consider Canada's rules, which I know nothing about, and then hopefully no one involved is a US citizen, because then you need to think about the IRS as well.

You might also run into trouble with the varying exchange rates between the countries, for example, if she loaned you the money at a rate of 1:1, and by the time you paid her back the rate changes in her favor, Canada might (and likely does), see that as an investment gain and will want tax on that earned income, even though you paid back the "same amount." Even if you pay back the amount in origin currency, so you pay back your mom the same amount she loaned you in Canadian dollars, you might end up paying more back then you originally borrowed. Exchange rate fluctuation isn't a big deal if you're on a holiday and buying yourself some coffees, but when you're talking about $500K then a 1 cent change in the rate could be a few thousand dollar tax bill.

The bottom line, in my opinion, is that you need to talk to a competent financial advisor before you do this, and, I think you'd be doing a service to the forum community if you could post the outcome once you get it sorted out.

Also, once you do get all that sorted out, I can recommend (am I allowed to by forum rules?) the TransferWise service. I used it for the transfer to my wife and did save thousands of dollars in transfer fees over the bank, and the transfer was completed, as I recall, in under two working days.

[Super_BQ]

@ diallta

You don't have to be a financial adviser when it comes to reporting of funds (and it should not be expected that a person seeks a financial adviser each time they go bring cash to the bank, or when someone sends them $). You just have to be smart about it by questioning the whole approach and reasoning of these AML and CRS requirements. It's the whole reason why my father joked about the whole scheme because these laws have been in place before and are ineffective now as they were before. If at any detriment, all these new reporting requirements have done is made it difficult for the NEW person opening an account. As for the existing account holders, all the banks can do is try to comply by asking information like tax # and place of residency ; especially for joint account holders where the other person can not be reached living abroad (estranged, etc.). But to stop laundering of $ in the banks? That's old school as the preferred way today is done through crypto-currencies.

I recently transferred some money to my wife's NZ account (not a joint account--we don't and won't ever have any jointly held assets) from an overseas account and no questions were raised by the bank. She now has the money invested with the bank in NZ, and again, they didn't ask where it came from. When time comes to make a purchase, then the anti money laundering questions might arise, but so far it's been quiet.

I can't speak about German tax laws and regulations (I do know you guys are experiencing negative interest rates ; all brought on by the ECB - a entirely different subject). The AML laws arises at the point of entry when funds go from 1 hand to another. As I mentioned before there is no issue when doing a wire transfer from bank to bank as once the funds are in the banking system, it is considered checked. The lawyer or conveyance, or real estate agent will have no concern if the funds come from either party. In Canada they've checked through this system of only allowing funds from the banks and not allowing other forms of paying like cash or gold bars to the seller directly and I assume NZ AML follows the same guidelines.

One of the greatest benefits that NZ and Canada have around $ is the ability to gift it tax free. As long as a person sending the funds insist, they're giving it as a gift, then there's no AML issue. The OP suggested to repay her mother back but I strongly advise against this in as involving layers and accountants on both sides of the country will incur $$. Though if the mother insists on a loan (as protection in case of a divorce by the receiving party, then there's no other option). Overall NZ tax laws are pretty simple compared to Canada. Just have look at the "attribution" tax laws Canada has.

I should add that the benefit of having joint accounts (with right of survivor-ship) and joint assets is it avoids probate. Upon death of the other party, the remaining assets will get transferred to the surviving party (if in joint tenancy). Also, the banks in NZ are not at privy to freeze a joint bank account because of 1 party that does not fully comply with AML. It's in the same manner as why joint assets aren't part of probate because of a 3rd party involvement.

As i'm in the middle of a house purchase, i'll report back after the settlement date to see what all the fuss is about.

[diallta]

My comments about the financial advisor had more to do with taxation and exchange rate hazards rather than reporting requirements. If Canada also does not have a gift tax, and his mother "gifts" him the money for the house, and then you know, he "gifts" some more money back later--is that acceptable for the tax authorities? Or are they going to pick up on that as if it were a loan, even if not formally constructed as such? I don't know.

And you're right, joint accounts have some practical advantages, but depending on your personal circumstances, they can also have some very substantial disadvantages. But, everyone has a different situation.

[Super_BQ]

My comments about the financial advisor had more to do with taxation and exchange rate hazards rather than reporting requirements. If Canada also does not have a gift tax, and his mother "gifts" him the money for the house, and then you know, he "gifts" some more money back later--is that acceptable for the tax authorities? Or are they going to pick up on that as if it were a loan, even if not formally constructed as such? I don't know.

Sarcastically speaking, I can't help not thinking about the term "Indian Giver" in relations to where the mother in Canada gifts the $ and then later on, can recall the gift $ back to Canada. It's a derogatory term given to native indians in Canada (and perhaps in the US also) that property ownership does not exist within a clan. That is if you give someone a gift, it does not mean you're giving it to them as what happens later they come back and take the gift. I've heard the example where a 1st Nation on the reserve gets a new radio that he would like to gift to another fellow 1st Nation person (say as a birthday or Xmas present). But months later, he changes his mind and goes back to take the radio back.

Anyways taxation doesn't come to play when gifting cash (but tax does apply when gifting assets like real estate, shares in companies, etc. because of attribution laws). That's because the value of cash does not appreciate, even if you try to factor in exchange rate differences because it's usually a non-issue. The only concern taxation comes to play is on 'INCOME'. Gifting cash regardless of what currency is not considered income, but if say the person was returning the cash in frequent sums (in a similar fashion like consecutive routine payments like in a load agreement, then the CRA could pick up on that).

As I said before, Canadian tax laws are complex in that 'attribution' tax laws can kick in on gifting investments. So if the mother had say $500K of shares in a company and wanted to gift those shares to a family member, well the attribution laws state that any dividends received by the person that was gifted the shares does NOT pay the tax. Instead that income is attributed BACK to the person that gave those shares and is declared on their tax return. Likewise with capital gains if the person that received the gifted shares sell those shares later on. But what most people do is they don't gift the investments directly but instead, sell the assets to lock in a capital gain, pay the tax, and THEN gift the cash.

I forgot to mention in the situation about jointing assets, as there is a way the mother can retain her portion of $ she gifted. In the normal case couples buy a house in joint (with right of survivorship ; aka joint tenancy agreement and if 1 person dies, their share is taken over by the surviving person). However, there is a jointing of assets called "Joint Tenant in Common" where each party can put down a % of ownership of the house. That % elected does not change when 1 party dies but rather, that % forms part of the deceased estate.

[diallta]

I think the point is that, from the original description, the $500K is not a "gift" as such. It's a loan and she expects the money back. This is unlike the money I transferred to my wife which I never expect back, it is a genuine gift.

Given that, I still maintain that it would be wise for the OP to consult with a financial advisor rather than get a very nasty surprise from either IRD or the Canadian tax authorities months (or years) later that he or his mother owes maybe tens of thousands of dollars. $300 spent on a consult now could save a very large bill later.