Working Mothers Targeted With Tax Relief Cap

Last updated on August 23rd, 2017 at 10:05 am

The Ministry of Finance (MOF) will introduce an $80,000 cap on personal income tax relief as described in the recent Singapore Budget 2016. This will kick in from yr2018. As I screened through the various reliefs, there is no other relief that is as significant as the Working Mother Child Relief (WMCR) as it works as a percentage of income. CPF relief and SRS relief are limited. All other reliefs are a few thousand each only.

The affected mothers not only include high income mothers but also middle income mothers with 3 or more kids. I disagree with Mr Girish Naik, director from PWC, as he suggested in this Straits Times report that perhaps the Ministry exempts WMCR from the cap so that taxpaying mothers may continue to enjoy the full incentive to return to work. It seems evidently clear that if WMCR were to be exempted, there would be few others that the $80,000 cap be applied to and for the Ministry to collect its projected extra tax revenue.

What to do if you are a high income mother affected by the Personal Relief Cap

1) Reconsider contribution to Supplementary Retirement Scheme (SRS)

SRS limits have increased to $15,300 this year but if you have reached the tax relief cap, there is little reason to contribute to SRS. However, do continue to save and invest for your retirement in cash.

2) Avoid CPF Cash Top Up (To own special account and parent’s CPF retirement account)

There is tax relief for voluntary CPF Cash top up and the maximum tax relief you can claim is $14,000/year for this. Calculate if it is still worthwhile.

3) Paying yourself through dividend income instead of salary

This only applies if you are a business owner with a private limited structure to choose from. Corporate tax may be cheaper than your net personal income tax if your relief has been capped.

The Ministry has said that the new personal relief cap is expected to raise an additional tax revenue of $100 million a year from an expected 20,000 mothers. If you are a middle income mothers with 3 or more kids, you may be part of this 20,000. However, fret not because tax is progressive and your new net tax payable is still expected to be low. Hence, it is only high income mothers that should be concerned about this personal tax relief cap.

Disclaimer: Ideas stated are purely personal opinions. Please check with your tax adviser.

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