One of the monetary perks of being a parent in Singapore is the receipt of the Parenthood Tax Rebate from the government. The Heartland family paid zero taxes in 2019 when the parenthood tax rebate directly offset their tax liabilities. As first-time working parents, they definitely welcomed this tax relief. Unfortunately, whatever that is left of the $5,000 tax credits would be insufficient to offset their tax bills that would be due in 2020. Therefore, Heartland Boy restarted his strategy of CPF top-ups in 2019 to procure more tax relief.
1. Top Up Parents’ CPF (Retirement Account) For Tax Relief
2 years ago, Heartland Boy blogged that his uppermost financial concern was his parents’ retirement funds. With limited cash savings and CPF balances, their retirement outlook looked bleak. Well, 2 years on, it got slightly better. Thanks to his siblings and him, his mum’s CPF Retirement Account (‘CPF RA’) has grown from $9,000 in August 2017 to $21,000 in Dec 2019. It was a concerted effort by them to ensure that she accumulates as much funds as possible in her CPF RA. This ensures that she receives higher monthly pay-outs to supplement her existing income when she eventually reaches withdrawal age.
Diagram 1: Heartland Boy’s mum CPF balances (Aug 2017 vs Dec 2019)
What is even more pleasing is that the combined balances in her CPF finally exceeded $30,000. This means that she will be taking full advantage of the additional extra interest rate awarded by CPF to elderly members like her.
For every CASH dollar that Heartland Boy voluntarily tops up to his mum’s CPF RA, he is granted tax relief that reduces his chargeable income by an equivalent amount. Do note that the cash top-up relief applicable for this category is capped at $7,000 per annum.
2.Top Up CPF (Medisave) For Tax Relief
When Heartland Boy spoke at the Hello CPF event in March 2019, he revealed that he made a little mistake in his financial journey – he had prioritised topping up his CPF Special Account (‘CPF SA’) over his CPF Medisave Account (‘CPF MA’). Thankfully, he realised this mistake early on and now perform cash top-ups to his CPF MA instead to gain tax reliefs.
Diagram 2: Heartland Boy presenting at Hello CPF event (March 2019)
He will continue to contribute cash to his CPF MA to gain tax relief for as long as he remains eligible. His goal is to achieve Basic Healthcare Sum (the ceiling for amount of monies allowed in MA) as quickly as possible so that future mandatory contributions would go to his CPF SA and eventually, CPF Ordinary Account. Note that the BHS for Year 2020 has been raised to $60,000.
Likewise, every voluntary cash contribution to his CPF MA would reduce his chargeable income during tax assessment. To determine the amount of tax relief one is entitled to when performing a cash top-up to MA, do read this article to understand the limit (Enjoy Tax Relief When You Voluntarily Contribute Cash To CPF Medisave).
The year is drawing to a close, so if you would like to employ either strategy to enjoy some tax reliefs, remember to do so before the cut-off date of 31 Dec 2019.
Conclusion of CPF cash top-ups for tax relief
Heartland Boy has often stated that this financial journey would be long, hard and unspectacular. Thus far, this has proven to be the case. Yet, it is also during a period of reflection such as the month of December that makes him realise that small victories should be celebrated. His mum’s CPF crossing the $30,000 is a worthy milestone that they should be proud of.
Hi, why is topping up CPF MA preferred over topping up CPF SA?
H Ming,
I wrote it in my other article. I believe MA has more flexible use than SA.In terms of interest rate, both are the same.
if one is already at the BHS, wouldnt the interest cover the yearly increase in the limit?
or, interest earned is not counted as part of the BHS yearly limit? only contribution is?
hi FC, i understand that there is a small window (few days)at the beginning of the year to top up cash up to the revised BHS. Interest earned in 2019 from MA will be deposited to SA or OA (if you have achieved FRS for SA).