Tax

How To Maximize Your CPF Cap For Your Tax Planning?

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Tax Planning Tips : How to maximize your CPF cap as Personal Relief to your Personal Chargeable Income by declaring some of your company profits in the form of year end bonus to yourself?

Received some enquiries yesterday to explain and illustrate how to maximize CPF cap as a form of year-end Tax Planning strategy. I would usually illustrate this as part of my 2-hour Clinic on this topic, however, let me elaborate here too for the benefit of other business owners on this platform for this important part of the year to do some tax planning for yourself…

You can only claim CPF Relief if your employee CPF contributions have not exceeded the Ordinary Wage Ceiling and Additional Wage Ceiling.

Ordinary Wage (OW) Ceiling
From 1 Jan 2016
$6,000 per month

Additional Wage (AW) Ceiling
From 1 Jan 2016
$102,000 less Total OW subject to CPF($102,000 = 17 months x $6,000)

Some elaborations…

 

Ordinary Wages and Additional Wages

Ordinary wages are wages due or granted for employment. They include allowances (e.g. food allowance and overtime payments) earned by an employee in the month. Ordinary wages must be paid before the due date for payment of CPF contributions for that month.

* Ordinary Wage Ceiling
An example of OW is your monthly salary.The OW Ceiling limits the amount of OW that would attract CPF contributions. The OW Ceiling is capped at $6,000 currently. For example, if you earn an OW of $6,500 in a calendar month, only $6,000 would attract CPF contributions; the remaining $500 would not.

Additional wages are wage supplements which are not granted wholly and exclusively for the month. These include your annual bonus and leave pay.

* Additional Wage Ceiling
The AW Ceiling is the maximum amount of AW that attracts CPF for the year, and can be computed using the following:

* $102,000 – Total OW subject to CPF for the year
For example, if you joined the company in January 2017 with a monthly wage of $6,000 and was granted a year-end bonus of $35,000 in December 2017, the AW ceiling that is applicable would be $102,000 – ($6,000 x 12) = $30,000. Since the year-end bonus amount is more than the ceiling, only $30,000 would attract CPF contributions; the remaining $5,000 would not.

The AW ceiling is computed on a per employer basis.

So, using the above example, for your own Personal Income Tax Planning purpose to max out your own CPF Cap, you should declare only $30,000 as Bonus, and then the balance $5000 as Director’s fee with a Shareholders’ Resolution to be dated in January 2018 so that this Director’s fee can be reported as 2018’s Personal Income, as a form of Tax Deferment strategy.

If you need help, feel free to contact us at :

(O) +65 63851011

(M) +65 90880669

(E) [email protected]

www.corporatebackoffice.com.sg

Written by Kelvin Loh