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Are Money Transfers Taxed?

For those sending money to friends, family or loved ones in another country, one of the options available to do so is through an international money transfer. However, depending on the amount of money being sent, there may be tax implications. No matter what country you live in, if you are sending large amounts of money abroad, it is essential that you work with an accountant to ensure you are in compliance with the law. 

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How money transfers and taxes work

For those sending money to friends, family or loved ones in another country, one of the options available to do so is through an international money transfer. However, depending on the amount of money being sent, there may be tax implications. No matter what country you live in; if you are sending large amounts of money abroad, it is essential that you work with an accountant to ensure you are in compliance with the law. 

Regulations and Taxes from Different Countries and Regions

United States

In the USA, the law requires that all banks report all cash transactions that exceed $10,000; banks will also report any suspicious transactions. On the other hand, money transfer companies that send money between companies are sometimes required to report transactions as low as $1000. The Bank Secrecy Act permits the Department of Justice and the IRS to investigate large money transfers to determine whether any illegal activity has taken place. Money transfers in the United States are processed through numbering systems, and this makes it easy for the government to track funds even if the money is sent to an overseas account. 

For those receiving financial gifts through an international money transfer, you won’t pay taxes, but you may be required to report the gift to the IRS. If the gift exceeds $100,000, you will need to fill out an IRS Form 3520. Gifts from a business or a partnership that exceed $15,797 require that you file form 3520. You are not required to pay taxes on this amount; however, if you fail to file this information, you will incur a hefty fine. 

Depending on the amount you are sending and why, the IRS may have you fill out a tax form if it is determined that you are to pay taxes on the transfer, a failure to report can lead to fines of up to $10,000 a year, or 5% of the asset value involved. 

Over the course of a lifetime, every person can gift up to $11.8 million without incurring any taxes. This figure includes gifts on inheritance money you plan on leaving in the future. There are two options available when filing gift returns, you can either choose to pay the gift tax, or bypass the payment and select the gift to your lifetime exemption limit. 

There is an additional twist to gift law taxes; in the majority of cases, you are not required to pay tax on funds sent to a spouse regardless of the amount of money spent. However, this only applies if your spouse is a United States citizen. If not, the maximum amount you can gift is $148,000 without being taxed. Since the laws in America regarding taxes for money transfers are so complex, it is advised that you contact a tax professional or the IRS for further assistance.

Australia

According to the Australian Tax Office (ATO), if you are emigrating to Australia, the amount of money you bring into the country is not taxable. However, all residents of Australia are eligible to pay taxes on money transfers to Australia depending on the amount. In general, transferring an inheritance from overseas is not taxable, but if those funds are put towards an investment, any earnings are taxable. Money transferred as a gift is not taxable; because in Australia, gifts are seen as a one-time payment. However, the ATO does not view all international money transfer payments as gifts. Therefore, it is essential that you contact the ATO for additional advice.

United Kingdom

The United Kingdom does not charge a gift tax for international money transfers; however, they do impose inheritance taxes on large gifts. When the transfer falls under the UK inheritance tax laws, failure to pay taxes will incur interest charges until the taxes are paid. There is no standard amount because the interest rate that you will pay typically fluctuates with the market. To get a better understanding of tax requirements in the United Kingdom, hire an accountant or contact HMRC.

European Union

All countries in Europe have their own laws for gift taxes; money sent for business purposes is taxable as a foreign income. If a recipient in Europe fails to report a large remittance on their tax returns, they risk paying huge penalties and, in some cases, a violation can lead to a prison sentence. 

A consequence of 9/11 was that money transfer providers are expected to report large suspicious transfers to the government. Therefore, even if a recipient does not list a transfer on their taxes, it will get found out. There are currently 28 countries in the European Union, and as mentioned each country has their own laws for taxes on international money transfers; therefore, hire an accountant or contact your tax office for further advice.

Tips to Reduce Tax Bill

Regardless of the country where funds are received or sent; the only way to reduce the tax bill is to ensure that all funds have been declared. Working with a tax professional such as an accountant will ensure that any tax exemptions are fairly applied, which they will also advise not to exceed certain thresholds of sending money.

It is also advised that taxes are filed on time; as you have read, in the countries where you are required to pay taxes, late payment or failure to pay can lead to a heavy fine.

Summary

Tax laws and regulations in all countries are extremely complex; although there is a lot of free information online, you don’t want to take any risks. Therefore, to ensure you do not violate the law, contact a tax expert in your country to assist you further.