you save $10,000 this year in your pension plans, you will get a
refund from Board of Inland Revenue (BIR) of $2,500. If you save
$25,000, you will get a refund of $6,250. This applies to all tax
payers in the 25 per cent income tax bracket.
refund is based on a tax deduction approved in the last budget.
The contribution ceiling is $25,000, so even if you save $50,000
in your pension fund, the refund is still a maximum of $6,250.
are two ways to get the benefit of the refund. You may wait until
you file tax returns for 2008. Of course you will do this exercise
in April 2009. Normally, the BIR will mail a cheque to you by December
is an opportunity cost in waiting until December 2009 for your refund.
second method you may use to claim your tax benefit in 2008 is by
getting a TD1 document approved by the BIR as early as possible.
will need to provide evidence to the BIR that you have a registered
annuity plan with an insurance company or a registered pension plan
with your employer, or alternatively a bank product that is approved
by BIR for the tax shelter.
will have to prove the level of contributions to these plans. Proof
of your pension contributions can be determined from the TD4 statement
supplied by your employer annually.
of contributions to an insurance company can be obtained from the
BIR stamped policy page, as well as a statement by the insurer of
the total amount of contributions paid in last year2007.
year, the maximum tax shelter claim was $12,000. If you want to
get the increased benefit you will have to get an endorsement on
your policy contract as soon as possible. This endorsement will
show your commitment to contribute $25,000 this year.
evidence is then submitted to the BIR when you submit your TD1 for
the approved TD1 goes to your employer, the increased tax deduction
is computed and will be applied to your next pay cheque. Thus you
will pay less tax immediately, without the opportunity cost of waiting
until December 2009.
not be confused into believing you can pay less tax monthly based
on the TD1 and still get a refund in 2009. You must choose one method.
summary, if you contribute $25,000, the real cost to you is $17,750.
Dont be confused into believing you can contribute $17,750
upfront. The refund is based upon actual contributions, and is paid
after the fact!
with employer-sponsored pension plans, now have a window of opportunity
to save more for their retirement by purchasing an individual annuity
public sector workers have government-funded pension plans to which
they contribute nought. They now have a window of opportunity to
save $25,000 per year for their own long-term benefit. It will only
funny thing about these tax benefits and shelters, called deductions,
is they can be withdrawn in a few years.
Revenue is willing to give you back $6,250, now! Otherwise you pay
$6,500 in tax. The window is open! Act now!