Monday, December 24, 2012

Last chance to reduce your tax in 2012


Yes, this are the last few days to reduce your 2012 taxable income. Besides the usual, this year there's additional tax reliefs you can go for. Personally some of the tax relief, thought meant to encourage certain lifestyles, e.g sports equipment tax relief to encourage healthy lifestyle, has a few things to consider:
  • Do you really want to just spend RM300 for sports equipment if you really don't need? So just buy what you need. 
  • The other thing is this sort of things is little open to mis-use i.e people just declaring but not really making purchases. They've got their ways to come up with receipts if being audited by LHDN, a simple borrow receipt from friend would work, as long as ALL you friends don't get audited for the same year, since so far I haven't seen receipts of sorts with NAME mentioned. There are also other ways...
  • The logic behind having this sort of relief among others is maybe after some detail ROI thought, e.g same thought process for vaccinations. As an entity or government, it is worthwhile to offer free vaccination (or subsidized) IF the cost of treating is (significantly) higher as it costs the govt a certain amount, e.g seeking treatment at Government / General Hospitals. So maybe its worthwhile to give RM300 relief so people are healthier and thus lower % of 'lifestyle' related sickness. 

Anyway going back to last call for 2012.
  1. Skim Simpanan Pendidikan Nasional (SSPN) under PTPTN. Used to be you can get tax relief for yearly net savings of RM3,000. This year it has been up-ped to RM6,000.  Now the savings you get obviously depends on your tax bracket. A quick calculation, if your tax bracket is:
    • 12%, you'd save RM720 in total (for RM6k net savings)
    • 19% : RM1140
    • 24% : RM1440
    • 26% : RM1560
    1. The interests / returns from SSPN itself haven't been that high, usually 3-4%, but reading some forum's its hard to 'see' this in your statement. Anyway, whatever you make, remember that've you've already saved e.g RM1440 (tax bracket 24%) in the first year. So thinking of it as compounding interest (year 2 savings are ON TOP of the RM1440 you already in-directly got from your tax relief) it is still good.
    2. You can open your account and do top ups at Maybank & Bank Islam. Top up can also be done thru M2U and PTPTN's website thru FPX.
    3. One question that keeps on coming up is for parents, if they claim separately can both of them claim for this relief. Per PTPTN's website - Yes if you fulfill the criteria below:.
      1. Ibu bapa yang membuat taksiran berasingan dan telah membuka akaun simpanan SSPN-i berasingan atas anak yang sama diberikan pelepasan sehingga maksimum RM6,000 seorang setahun;
  2. Private Retirement Scheme (Private Retirement Scheme)
    • This newly introduced scheme is to encourage additional savings on top of your EPF savings. Interesting that the gov would introduce this. Actually to me the top beneficiary are the trust fund companies given the approval to offer such a scheme. Obviously depositors and tax payers also benefit. 
    • I did a quick write-up some time ago about the options at PRS Options. Obviously there are new updates, and updates from PPA (Private Pension Administrator) is currently the most comprehensive - click here to see a summary.
    • Kudos to Hwang IM for coming up with options fast, and with 0% sales charge. I initially expected all the PRS provider to offer 0% (since most people's $ will locked in PRS once in) but as you can see in PPA's summary, this is not that case. The problem (for those little lazy) of 0% is that I'm guessing your trust fund agents won't be that 'eager' to promote this funds, unless there is another source of income for them instead of commission on the sales charge.
    • Again kudos to Fundsupermart for offering all Hwang IM's funds. I'm curious how the commision works out. I've always wanted to open an account with Fundsupermart since for most unit trust funds the sales chargers are lower compared to buying from banks, the unit trust company itself and agents. Btw, there is another online fund agency tha has got lower sales chargers as well eunittrust. The other thing is since I don't invest tens of thousands of RM, i find my agent not that 'responsive'...haha. And I seldom withdraw from EPF much for unit trust as well. 
    • Anyway, bottom line is, assuming the funds perform even average, you've already made savings of 9-26% on your RM3,000 investment with the tax relief, again depending on where your tax bracket is, and obviously this is significant. And you save on not having incurred any loss when you purchase the unit unlike typical trust funds where immediately when you purchase, you already loss ~2-5% on sales charge. 
    • Since I've already invested in Hwang, let me write a little about it since it'll take you some time to read thru the whole PRS thingy. 
    • Why I chose Hwang IM? Not that many options currently available, and also wanted to do thru Fundsupermart. Also 0% sales charge. Remember another possible option is like Great Estern's deffered annuity, where you invest a min fixed amount yearly, and after retirement get a yearly 'allowance' up to 10-15 years (with interest). Sounds good for safe players, my only concern is what if that year no extra cash to invest. At least in PRS if no extra cash that year just don't invest lor. Since you already have other commitment like your insurance.
    • Hwang IM's PRS offers 3 conventional funds and 1 Islamic Fund. The conventional are aptly named Conservative, Moderate and Growth. If you check out their prices already they stand true to their labels. (now the bigger qs is how they fare when a downturn is here). The Islamic fund is only 1 and is a feeder fund. PRS Aiiman Growth which feeds into existing Aiiman Growth. The plus point about this is that you can see and evaluate the past performance of Aiiman Growth for reference. 
    • You can buy Hwang IM PRS probably directly from Hwang IM or from Fundsupermart. 
    • REMEMBER, that there is a lock-in period - i.e till retire, expire or migrate permanently. The account 2 (20%?) can be withdrawn once a year with a 8% penalty.  
    • You can switch funds as long as it is a PRS from what I understand, so there is decent flexibility, except I've not seen an bond PRS funds so can't switch into bonds during worrying times?
    • The other concern I have is that the PRS funds offered were way to late for 2012, not enough time to educate nor to do Dollar Cost Averaging. Also would you say the market is currently already quite high? Remember buy low sell high? Well if your bracket is 19% , as long as the PRS doesn't de-value by 19% you still make profit. Ha ha. 
  3. Another option to reduce your taxable income is obviously giving to charitable bodies that have been approved by the Finance Ministry / LHDN. One option is Aman Palestin. 

Ok have a good 2012 and 2013 soon. Happy investing and donating.

By the way, if you're wondering 'What if I can getter better returns / dividend from other sources, does it still make sense to invest in SSPN? I did a comparison and explanation on what % of returns to expect from other sources that would make it comparable to SSPN's dividend + tax relief benefit, click here SSPN vs Higher Returns Outside



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