Sunday 24th February, 2008


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If 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.

This 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.

There 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 2009.

There is an opportunity cost in waiting until December 2009 for your refund.

The 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.

You 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.

You 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.

Proof 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 year—2007.

Last 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.

This evidence is then submitted to the BIR when you submit your TD1 for approval.

Once 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.

Do 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.

In summary, if you contribute $25,000, the real cost to you is $17,750. Don’t be confused into believing you can contribute $17,750 upfront. The refund is based upon actual contributions, and is paid after the fact!

People with employer-sponsored pension plans, now have a window of opportunity to save more for their retirement by purchasing an individual annuity plan.

Many 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 cost $17,750.

The funny thing about these tax benefits and shelters, called deductions, is they can be withdrawn in a few years.

Inland Revenue is willing to give you back $6,250, now! Otherwise you pay $6,500 in tax. The window is open! Act now!