Issue 4

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Spending your money wisely on risk. I wanted to bring this matter up many times but I was not sure if I was encroaching beyond my field of expertise by talking about insurance policies.

Why do we buy insurance?

There are things in life which we KNOW, WILL happen and even though the chances of these events occurring to us personally are slim, maybe even slimmer than striking at TOTO or 4D, we are willing to pay someone else to take on the cost of the effects of such an event happening.

Because the amount of money we spend for someone else to bear the cost is far less than the potential liability incurred or pay out received by us.

Why do we invest?

We invest because our money depreciates in value through inflation.

We invest because we want our money to work harder for us, and as in any other jobs, our money earns us a steady form of income, for example,

Bank deposits – interest

Properties – rental 

Shares - Dividends

and of course many others.

Why do we gamble?

(I am not very sure of pay outs etc...apologies)

We gamble because we want to turn our dollar to something exponentially higher, for example,

TOTO – S$2 to become a millionaire

4D – S$1 to win $3,000 or something

Horse racing – whatever it is...

Basically, we gamble because we HOPE that the payout from the gamble will be far more than the amount we pay.

So, buying insurance is like TAKING A GAMBLE!

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Incident	You pay	You get
Fire at home	S$300 p.a.	S$200,000
4D First prize	$200 big bet	S$400,000

From an accounting point of view – BOTH must be treated as AN EXPENSE. Incurred and forgotten about!

WHAT'S YOUR POINT????

Many of our insurance agents/financial planners love to stir up our emotions in regards to spending money!

They tell us that our money spent on insurance is NOT an expense BUT an investment! This makes it easier for us to part with our money! Since we will get back SOMETHING MORE!

So we are lured into buying investment linked insurance products in hope getting back what we paid into it. A GREAT DEAL? We get our risk COVERED and get it FOR FREE!!!

Rule No.1 in life – If it is too good to be true, it probably is!

Treat insurance as an expense – pay for coverage only

Treat investment as an investment – to get steady rewards for delaying gratification.

So Bob, are you saying, that we should ONLY buy term insurance?

My answer would be to use your money wisely:

Cover risk – Pay insurance to cover risk, why mix them up? (investment & insurance)

Protect your dollar – Choose suitable financial instruments to protect against your dollar depreciating in value.

Invest – What's your appetite in regards to losing EVERYTHING?

IN SHORT – Pay only for what you are going to use it for!

I saw the following words of wisdom by Warren Buffett to his shareholders which was brought to my attention in a client's face book account.

http://www.berkshirehathaway.com/letters/2007ltr.pdf 

“I should mention that people who expect to earn 10% annually from equities during this century – envisioning that 2% of that will come from dividends and 8% from price appreciation – are implicitly forecasting a level of about 24,000,000 on the Dow by 2100. 

If your adviser talks to you about double digit returns from equities, explain this math to him – not that it will faze him. Many helpers are apparently direct descendants of the queen in Alice in Wonderland, who said: “Why, sometimes I’ve believed as many as six impossible things before breakfast.” Beware the glib helper who fills your head with fantasies while he fills his pockets with fees.”

How does our IRAS see it?

Insurance - Personal

Life Insurance are tax deductible upon certain conditions.

Only life insurance policies are allowed and if your CPF contributions exceeds $5,000, you cannot claim any more deductions!

Insurance - Corporate

Insurance are tax deductible upon certain conditions.

Keyman insurance

Medical insurance (limit)

Fire, workmen compensation etc.

Investment -

Investments are a balance sheet item, it is treated as an asset.

Loss on investment – No deductions

Gains on investment – No tax payable

(Not applied to companies whose main trading activity is to trade in stocks and shares)

Investment income - 

All taxable except for local dividends.

* As always see independent advice!

Issue - 3

PDF VERSION

MORE MORE MORE Deductions! In the following issues, I will be exploring some more deductions you can make use of.

Please send in your request for topics you will be interested in to support@accountingbpo.com

Renovations

IRAS used to disallow renovations, but has now made some changes to help SMEs.

IRAS has now allowed deductions for the following:

- General electrical installation and wiring to supply electricity;
- General lighting;
- Hot/cold water system (pipes, water tanks etc);
- Gas system;
- Kitchen fittings (sinks, pipes etc);
- Sanitary fittings
(toilet bowls, urinals, plumbing, toilet cubicles, vanity tops, wash basins etc.);
- Doors, gates and roller shutters (manual or automated);
- Fixed partitions (glass or otherwise);
- Wall coverings (such as paint, wall-paper etc.);
- Floorings (marble, tiles, laminated wood, parquet etc.);
- False ceilings and cornices;
-Ornamental features or decorations that are not fine art (mirrors, drawings, pictures, decorative columns etc.);
- Canopies or awnings (retractable or non-retractable);
- Windows (including the grilles etc.);
- Fitting rooms in retail outlets.

NOT deductible

Any designer fees or professional fees;
Any antique; or
Any type of fine art including painting, drawing, print, calligraphy, mosaic, sculpture, pottery or art installation.

Any catch?

Must be incurred during the period 16 Feb 2008 to 15 Feb 2013 under Section 14Q of the Income Tax Act.

Must be claimed over three consecutive Years of Assessment.

If your company is in a loss position or the Section 14Q deduction is higher than the adjusted profit, the amount of unutilised Section 14Q deduction can be:

- deducted against the company's other sources of income;
- carried forward to offset against the company’s assessable income for future YAs if there is no substantial change in the shareholders and their shareholdings and no change in the principal activities; or
carried back to the immediate preceding YA to be offset against the assessable income under the loss carry-back relief.

Restricted to S$150,000 cap for every 3 relevant period.

Life insurance

If it is your company policy to buy insurance policies for the employees and the beneficiaries of the policy are the employees, the life insurance premiums paid are tax-deductible expenses as it constitutes as staff cost.
(Please note that the life insurance premiums are taxable as employment benefits of the employees and these benefits must be declared in their Form IR8A)

If your company is the beneficiary, the insurance premiums are not deductible unless they satisfy the conditions of a "keyman" insurance.

Issue - 2

Click here for PDF file: Here

Last month, we talk about the SRS scheme where you can save money by paying less taxes.

This month, I will continue on the “loop holes” available to you. Yes, these are LEGAL, actually, they are NOT loopholes but just tax incentives given to entrepreneurs in Singapore.

Leave the car in the garage – Bob Oh

IRAS clearly states that ALL expenses for S-plated vehicles are NOT tax-deductible. That means no deduction for petrol, repairs, parking etc.

You MAY claim petrol expenses from your company, it is allowed, it is however NOT allowed for income tax deduction.

For example,












The tax payable will be calculated on the TAX PROFIT not Accounting profit.

Can you expense off petrol claims by your employees?

For accounting purposes – Yes
For tax purpose – No

How can you claim as tax expenses for petrol expenses then?

Pay a fixed transport allowance to your staff.

Pros
The company can claim in full the transport allowance given.

Cons
The company must pay CPF on such allowances.
The staff must pay income tax on these allowances.

Other suggested solution

Take a taxi – every single cent is claimable.
Staff to take taxis
Purchase a business vehicle (e.g. G-plate)
Engage a chauffeur (car provided)

Why Business vehicle?
a. You can claim petrol, repairs and other related
expenses. (except for fines & summons)

b. You are given a capital allowance deduction.

c. You can advertise your company on your business
vehicle

d. You need not pay CPF and your employee is not
taxed for using the vehicle.

Why a chauffeur?
a. Save you the driving, gives you more time to prepare for your sales meeting.

b. Expense off this service received and get a tax deduction.

c. Move the maintenance of a car and driver to another person.

Issue - 1

PDF version

Recently, there were several questions from clients in regards to the SRS scheme. We have therefore decided that our inaugural launch would feature this tax saving instrument available to you.

Saving on Taxes with New SRS Scheme – By Bob Oh

The Supplementary Retirement Scheme (SRS) was established on 1st April 2001 to encourage individuals to save for their retirement by offering tax incentives. The SRS is open to all Singaporeans, Singapore Permanent Residents (PRs) and foreigners who are at least 21 years of age. However the individual must not be a bankrupt or of unsound mind.

Each individual is allowed only one account. Individuals without any earned employment income in the previous year can contribute to the SRS in the current year.

Benefits

1.Claim tax relief for contributions made to the SRS.

2.Investment gains in the SRS are tax free with the exception of Singapore dividends received, which are taxable.

3.Tax will be payable only when SRS savings are withdrawn. If savings are withdrawn in its entirety upon retirement, only 50% will be subject to tax.

4.Withdrawals may also be staggered over 10 years to enjoy greater tax savings.

Making contributions
All SRS contributions are to be made in cash at any time before 31st December each year.

Capping
Singaporeans and Singapore PRs — S$11,475
Foreigners — S$26,775

What can I do with my SRS funds?
Funds in the SRS account may be invested in a range of financial products. For example,

fixed deposits
insurance products and unit trusts
single premiums with life cover of not more than three times the single premium will be allowed.

All proceeds from the realisation of SRS investments must be returned to the SRS account.

Where and how can I contribute?

You can contribute by opening an SRS account with any appointed SRS operator. All SRS contributions must be in the form of cash. Currently the appointed SRS operators are DBS, OCBC, and UOB.

Can employers contribute directly?
Employers can contribute to their employees’ SRS accounts, subject to the current SRS contribution limits, and claim full tax deduction. SRS members will enjoy tax relief on the contributions made by their employers.

That means it is part of employers expense but part of employee's remuneration.

See PDF file for calculation examples

What is it worth to you?

S$11,475 savings for 20 years @ 5% returns p.a. - S$393,050

S$11,475 savings for 20 years @ 10% returns p.a. - S$726,146

S$11,475 savings for 20 years @ 15% returns p.a. - S$1,431,735

S$11,475 savings for 20 years @ 20% returns p.a. - S$2,973,605