Saturday 11 March 2017

Budget 2017 | Personal tax rebate made me lost $98

Just before end of 2016, Max did a voluntary cash top up of $7k to his CPF-SA savings. As you can see from the dates of transfer, the transfer was a decision at the eleventh-hour. The transfer is split into two transaction ($3.8k + $3.2k) due to the daily transfer limit on my bank account.

Max's voluntary cash top-up to CPF SA in year 2016


It was fortunate that the second transfer confirmed on 1 Jan 2017 was still eligible for the tax relief for YA 2017. I guess it's because I made the transaction on 30 Dec 2016 and the process took 2 days to be confirmed, so technically, the transfer was made in year 2016.

Max's personal relief from CPF cash top-up for YA 2017

So rightfully, being in the 7% tax rate income bracket, I was looking forward to receive a tax savings of $490 (7% x $7,000) in YA 2017. This was until our Finance Minister Heng Swee announced at Budget 2017 on the 20% tax rebate for all Singaporeans, capped at $500.

Why is this guy complaining about additional tax savings?

Well, additional tax savings is always a good thing, no complains over here. The only problem here is that my cash-SA top up made in 2016 will not receive the full tax savings originally I intended it to be. Confused? Let's illustrate with an example.

Assume Joe's taxable income for YA2017 is $50,000 after deducting all the applicable non-voluntary reliefs (such as CPF relief, earned income relief etc.). He then decides to make a $7,000 voluntary cash top-up to his SA savings, bringing his taxable income to $43,000. The expected tax savings on the cash-SA top up is $490.

With the additional 20% tax rebate (cap at $500) announced at Budget 2017, the tax saving on the cash-SA top up will be reduced to $392 (tax payable of $608 and $1,000, with and without $7,000 cash-SA top up, respectively). This is a $98 reduction on the original tax savings, which can be enjoyed if the cash-SA top up is performed on another year.

Tax savings on cash-SA top up reduced from $490 to $392

Am I affected?

If you have not made any voluntary transfers to reduce your taxable income for YA2017, then of course this will be irrelevant to you. You enjoy the tax rebates announced at Budget 2017, end of story. 

However, if you done any of the following voluntary transfers in year 2016, the corresponding tax savings may be lesser than what you had expected. 
  • CPF Retirement Sum Topping Up Scheme (cash-SA top up)
  • Supplementary Retirement Scheme
  • Donations (applicable for tax rebate)
Basically, if your tax payable is above $67,857 after all the voluntary transfers, then you will not be affected because your additional tax savings (from Budget 2017) will be limited by the $500 cap, regardless of whether voluntary transfers were made.

One quick way to find out is to check from IRAS by logging in with your Singpass.

Tax savings on cash-SA top up unchanged if taxable income > $67,857

You can't optimize what you can't control

As a firm believer in optimizing savings towards achieving FI, it is not sweet to know that I am 'short-changed' for the cash top up made last year. But again, without advanced knowledge of changes to policies in the future, we can only at best optimize our savings based on what we know today.

Historically, there are 3 personal tax rebates in the last 5 years.

  • YA 2013 - 30% tax rebate up to $1,500
  • YA 2015 - 50% tax rebate up to $1,000
  • YA 2017 - 20% tax rebate up to $500

Does that mean that we can expect a personal tax rebate in YA 2019, who knows?


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MAFIA
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