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Considerations When Receiving Money from Family Abroad

When an individual is receiving money through a trusted online foreign exchange service — whether as a gift or as foreign income — it pays to put a little forethought into how, when and in what form he or she should accept the money, in addition to potential tax implications.

Here are four questions individuals should ask themselves when they’re on the receiving end of an online foreign exchange transaction.

1. What Type of Foreign Exchange Service Should I Ask My Sender to Use?

There can be a substantial difference in exchange rates at the sending and receiving institutions, says Katherine Gragg, an enrolled agent at Greenback Expat Tax Services, a tax advisory for expatriates headquartered in New York.  

Online foreign exchange services often allow individuals to claim their money in person at an agent location, through a local bank account, on a prepaid card, via a mobile wallet or by a bank-to-bank online transfer.

Typically, online foreign exchange services offer substantially lower markups compared to the extra costs levied by banks that perform similar services. And online foreign exchange services are often able to provide better transparency during the fund-transfer process.

2. What Are My Options for Accessing the Money?

There are numerous ways for individuals to accept a money transfer, but their options will depend on how the sender chooses to deliver the money. Online foreign exchange services often allow individuals to claim their money in person at an agent location, through a local bank account, on a prepaid card, via a mobile wallet or by a bank-to-bank online transfer.

Depending on how quickly an individual needs access to his or her money, having options helps to ensure that payments are received as quickly as possible. 

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3. What If the Money Isn’t a Gift?

Tax considerations are generally the responsibility of the individual who is sending money overseas. However, if individuals from the U.S. or U.K. receive foreign income — rather than a gift — through an online foreign exchange service, then they may have to report it on their tax return, Gragg says. She recommends speaking with a financial advisor, as every situation is different and depending on the country, the rules may be more or less strict.

“The U.K. has no foreign exchange controls for gifts,” says Simon Hopkins, a U.K. tax expert with WTP Advisors, a global tax and business advisory firm with headquarters in New York, London and Munchen, Germany. “So, I could receive £1 million in cash and not report it.” However, money received as income is reported as such. Up to £10,600 pounds is exempt from capital gains tax for 2013.[1]

Canadians must file a return for any gains from capital property gifts, including real estate, stocks and bonds. According to the Canada Revenue Agency (CRA), these gains are considered capital gains, even if they were attained as a gift.[2]

4. What Are the Tax Considerations?

Individuals in Canada and the U.K. don’t have any tax considerations, unless international payments are received as income or in the form of capital gains. Only then must they report it on their income taxes, says Ilyas Patel, director at Ilyas Patel Chartered Certified Accountants based in Preston, U.K., and the director of Tax Expert, a tax advice website.

To that end, when considering their tax obligations, individuals should take care to look into the reporting requirements on foreign income or gifts ranging up to a certain amount. For example, in the U.S., the Internal Revenue Service (IRS) requires individuals who receive more than $100,000 U.S. dollars from a foreign source to report it on a Form 3520. “You may not owe taxes on the money, but it informs the IRS that you received it,” Gragg says, stressing the importance of consulting with a professional. “They’re looking for certain terrorist activities and other illegal activity.”

In any situation, it is helpful for individuals to work with a trusted foreign exchange services agent who can educate them on best practices for sending money overseas. By opening up lines of communication with a qualified expert, individuals can access their money quickly and efficiently.

[1] Her Majesty Revenue & Customs (HMRC), 2012

[2] Canada Revenue Agency (CRA), 2012

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