26 February 2015

Another Way to Avoid Paying More Tax - The Act of Giving

Previously, drawing upon the latest budget announcements (2015), I shared about One Way to Avoid Paying More Tax. There is yet another interesting way to avoid paying more tax come 2016, and this involves Giving from the Heart.

The tax deductible for donations to recognised charity organisations will be increased from 250% to 300% for donations in this Jubilee year. For subsequent years till the end of 2018, the deductible will revert to 250%.

Suppose I were to donate $1,000. The tax deductible at 300% would be $3,000. If my tax bracket is at 19.5%, that would be $585 of tax avoided. Looking at it from another angle, I would effectively be spending only a net amount of only $415 to give $1,000 to charitable causes.

Want to start giving now? Try SG Gives.

The nice thing is that these recognised charities automatically update IRAS. So there is no need to make specific declarations to claim these deductibles in our income tax submissions. It is so seamless. Effortless. Efficient.

One Way to Avoid Paying More Tax
Giving from the Heart
Giving Back to Society - SG Gives

24 February 2015

One Way to Avoid Paying More Tax - SRS Adjustments from 1 Jan 2016

According to the latest budget announcements, the personal income tax will go up by as much as +2% for the higher income brackets. At the same time, the Supplementary Retirement Scheme (SRS) contribution limit would be raised from $12,750 to $15,300 for Singapore citizens and PR with effect from 1 Jan 2016. For foreigners, the corresponding SRS contribution limit would be raised from $29,750 to $35,700 (they do not have CPF contributions).

Supposing that with the new taxation levels, my tax bracket is at 19.5% (i.e. taxable income above $240,000). By maxing out my SRS contribution at $15,300, this amount would be deducted from my taxable income. As such, I would be making a tax avoidance of 19.5% x $15,300 = $2,983.50. That's enough for another short holiday!

Guess it's also one way to offset the increase of tax. I wonder if anybody is going to tell their bosses this year, "Boss, don't pay me more this year!"

An Excursion on SRS, Deferred Taxation
Maximising Returns with Minimal Risks - for the ultra conservative investor
Start of 2015 - Time for Some Tax Avoidance

20 February 2015

Lunar New Year - A Flurry of Ang Pows

It's the Lunar New Year, the time of the year when coffee shops are closed, fast food restaurants are crowded, as are all the fancy restaurants. Calories intake are up. And stocks are stable, only because the market is closed. For that matter, all the markets are closed too!

What does one eat during New Year? Maybe that one buffet orgy at wherever it is you're at. Steamboat, "lo hei", pastries a plenty. All it takes is one meal a day and I've consumed all the intake that I should be consuming.

But that's not what I wanted to talk about. What I wanted to talk about are the "Ang Pows". Every year, my wife and I faithfully give out Ang Pows, as is the tradition and practice from eons. In turn, my kids receive theirs from the married elders. Each year, what they receive add up to tidy sums. What does one do with all that money?

I guess there are three main options:

1.  The parents 'chiong gong' (confiscate) the sum received in exchange for what they've given out.

2.  The kids keep the money and squander it away. Samsung S5 or iPhone 6 perhaps?

3. The parents invest the sum for the kids' future.

I opt for the last. The only sum they keep and spend as they wish are the Ang Pows we gave them.

Happy New Year!

16 February 2015

OCBC Capital 3.93% NCPS to be Redeemed

There goes another NCPS. OCBC's 3.93% NCPS is being redeemed at par value. Trading will stop on 27 Feb 2015, and proceeds would be paid on 20 Mar 2015.

Non-Convertible Preference Shares

06 February 2015

MoolahSense Embarks on a New Fundraising Campaign

Looks like MoolahSense is getting its 2nd fund raising deal going. This was the headline in their e-mail to its members:

School Expanding into the Region.
Invest in their Growth!

Come on down to our closed-door info-session to find out more about the next campaign launching on MoolahSense. Don't miss your chance to “Meet The Boss” and get first-hand information about the business.
Time: 9 Feb, Monday | 7pm-9pm
Venue: 5 Teck Lim Rd, S088383

I would have a lot more confidence if this becomes a regulated line of business.

Crowd Funding Comes to Singapore

04 February 2015

A Great Retirement Offer from CPF

This is possibly one of the most important change in recent decade that will affect our retirement planning and definitely worth reading: Recommendations by the CPF Advisory Panel.

I view with much excitement the proposed option for the Enhanced Payout. With an Enhanced Retirement Sum of $241,500 giving a monthly payout of $1,750 to $1,900. For a couple that maxed this out, that would mean $3,500 to $3,800 of monthly income post-retirement at age 65. That's a hefty sum to meet retirement needs. The recommendations also suggested that this sum can be voluntarily topped up. I hope these can become tax-deductible as well.

I did a quick estimate, if I were to take the same sum of $241,500 (age 55) and achieve an annual rate of return of 6.5% for 10 years (age 65), and withdraw thereafter at 4% per year, I would only achieve $1,511 per month. Of course the difference in my model is one with a perpetual capital retention but with more market risks, whereas CPF's is comparatively risk-free and involves a draw down.

At the end of Chapter 2 of the report, there is a summary data from the household expenditure survey of retirees conducted in 2012/13 . Projected into the future, the per person expenditure works out to be $409.70, $669.70, $931.90, $1,364.90 and $3,170.10 for the respective quintile by 2026 (2% inflation assumed). Assuming at the top end, a retiree couple in 2026 would hence require $6,340. If $3,500 has been met via CPF retirement income, that leaves $2,840 to be met via other means. I figure that would mean an investment portfolio of $852,000 (i.e. $2,840 *12 months / 4%) generating 4% income per year.

Other options effectively retained the current Minimum Sum but renamed Full Retirement Sum at $161,000 with $1,200 to $1,300 monthly payout, and the Basic Retirement Sum at $80,500 (with property pledged) with $650 to $700 monthly payout. These provide options for those who are adverse to CPF holding the retirement savings and prefer to cash out.

CPF and the study team has done a great job in putting together the information packages that are reasonably easy to digest. It looks like MoM has accepted the recommendations. I look forward to the introduction of the Enhanced Retirement CPF package.

CPF - A Lifeline for Retirement

02 February 2015

The Allure of Gold - Treachery of the Glitter

Gold is such an alluring product. It somehow carries this magical feeling of value. Perhaps it has to do with the Chinese and Indian cultures of collecting gold products as items of value, passing on from generation to generation.

Unfortunately in recent years, gold scams have been repeated, case after case. How does it work? Here's the general idea ...

The Scam

Company sets up shop in some flashy area, coupled with gold plated signages. It looks "rich", creates the illusion of grandness and brand. The Company sells the idea of VERY HIGH interest returns from buying gold, padded with the offer to buy back after a lock-in period at a lower percentage of the cost. Let's say 80%. So it comes across as principal guaranteed right? And coupled with the interests earned each year, it would seem like the full principal sum would be guaranteed. The holding period seems short. Perhaps three years. Would seem like the risk is gone after the three years? Certainly looks a lot shorter than waiting 20-30 years to see one's CPF money? So it starts to look damn attractive.

Then, couple this with a year or two of real track record - i.e. the pay out feels real. Now you build a base of investors who have become your spokesmen. They are then enticed into introducing their friends, people in their circle of trust. Unknowingly, the first generation of investors have become their sales agents. The pyramid now snowballs.

Is this whole business even real? This is actually viable for the company when the price of gold is on a continuous uptrend. Consider the early part of 2000s. That's how the price of gold looked like. The company is able to pay out the interest from the appreciation of the value of gold itself. Actually, the investor might have been better off buying a Gold Exchange Trade Fund (ETF) directly from the stock market and get the same outcome!

Post 2010, what has happened? The price of gold has been on a decline. Consequently, the company selling the scheme wouldn't be able to provide the high interest payout anymore. Or they could do so but suffer horrendous losses with no certainty of the trend moving forward.

So what do they do? They run! The investor is left holding the can, losing whatever cash they had invested. Capital guaranteed? Alas, not when the seller has run away with all your money. These schemes are not regulated by the Monetary Authority of Singapore (MAS). Best of luck!

In a country seen as upright (some say uptight) and trustworthy, it just seems unthinkable to the average man on the street that such large scale cheating can happen here in Singapore. There is too much in the psyche that the government is taking care of everything.

Then there is the problem of greed, and that absence of understanding on what realistic investment returns can be. When the risk-free rate of our CPF-SA is at 4% per annum, is it realistic to expect any real investment that can give out 4% per month!? That's 48% per year. Come on! If there is such easy money to be made, nobody needs to work anymore. The money tree must have become a reality. Ah, Utopia.

A Consequence

Most unfortunately, I came across an old friend who got himself caught up in this shady business. He was apparently the seller. I do believe he was quite an innocent partner thinking that he was offering a legitimate investment business. His partner ran away. He didn't. So he gets all the shtick. He got sued by a whole bunch of investors. You can imagine how his life has gone downhill. From living in a decent condo to driving a taxi trying to make ends meet. I hope he recovers from all this.

Morale of the Story

To repeat the cheesy line that has been so often said, "When it's too good to be true, it's most certainly too good to be true."

Gold and Fear