CPF Changes Arising From Lower Salary Ceiling New Formula For Additional Wage Ceiling Revised Limit On Voluntary CPF Contributions Passing On Cost Savings To Your Employees? Read This! Additional Medisave Contribution Scheme Changes To Tax Deduction Limit For The Self-employed   CPF Changes Arising From Lower Salary Ceiling   With the reduction of the monthly CPF salary ceiling from $6,000 to $5,500 from 1 January 2004, other limits on CPF contributions will also be changed. The Additional Wage Ceiling and the Limit on Voluntary Contributions will both be revised. New Formula For Additional Wage Ceiling   The Additional Wage Ceiling sets the maximum amount of Additional Wages on which CPF is payable. A new formula will be used to calculate the Additional Wage Ceiling. Come 1 January 2004, the formula will be changed to:   Additional Wage Ceiling = $93,500 – Total Ordinary Wages subject to CPF   Employers should note that the new formula uses the Total Ordinary Wages that is subject to CPF in the year. This is the sum of all the monthly wages up to $5,500 per month (salary ceiling) in the year for which CPF contributions have been made. Thus, for an employee earning $5,500 or more a month in Ordinary Wages, his Additional Wage Ceiling in 2004 will be $27,500 [i.e. $93,500 – (12 x $5,500) = $27,500]. For an employee earning $4,000 a month, the Additional Wage Ceiling will be $45,500 [i.e. $93,500 – (12 x $4,000) = $45,500]. Please see below for an example on how the Additional Wage Ceiling is calculated.   Example Mr Tan’s wage records for 2004 are shown in the table below. By applying the salary ceiling of $5,500 on his monthly Ordinary Wages (OW), his Total OW subject to CPF contributions is $53,000. Therefore, his Additional Wage (AW) Ceiling is $93,500 - $53,000 = $40,500 Although the total AW paid to him is $45,000, CPF is only payable on $40,500 of the AW.   Month OW paid ($) OW subject to CPF ($) AW paid ($) AW subject to CPF ($) Jan 3,000 3,000     Feb 3,000 3,000     Mar 3,000 3,000 10,000 10,000 Apr 3,000 3,000     May 4,000 4,000     Jun 4,000 4,000     Jul 6,000 5,500 15,000 15,000 Aug 8,000 5,500     Sep 9,000 5,500      Oct 9,000 5,500     Nov 9,000 5,500     Dec 9,000 5,500 20,000 15,500 Total 70,000 53,000 45,000 40,500   Click here for a list of Frequently Asked Questions on the Additional Wage Ceiling Click here for a copy of the Brochure Additional Wage Ceiling for 2004   Revised Limit On Voluntary CPF Contributions   From 1 January 2004, the yearly limit on CPF contributions will be lowered from the current $28,800 to $23,760. The revised limit is based on the new salary ceiling and the maximum long-term contribution rate of 36% (i.e. $5,500 x 12 x 36% = $23,760). This means that total CPF contributions, including mandatory and voluntary contributions, will be limited to $23,760 or the mandatory CPF contributions, whichever is higher. Mandatory contributions are compulsory contributions required under the CPF Act, such as CPF contributions on Ordinary and Additional wages for employees, and Medisave contributions by self-employed persons. The table below shows the calculation of the maximum amount of voluntary contributions allowed. Amount of Mandatory Contributions (MC) Maximum amount of Voluntary Contributions (VC) MC < $23,760 VC = $23,760 – MC MC >=$23,760 VC = $0 Any voluntary CPF contributions made in excess of the limit will be refunded without any interest. More information on the Limit on Voluntary Contributions and the Additional Wage Ceiling can be found on our website www.cpf.gov.sg Passing On Cost Savings To Your Employees? Read This!   Some companies that are doing well may be passing on the cost savings from the cut in CPF contributions to their employees. This may be in the form of more CPF contributions, or additional pay. Employers who are contributing more than the mandatory rate of 13% must register for a separate Employer Reference Number. This Employer Reference Number should be used for voluntary CPF contributions only. To apply, complete the Application for Employer Registration Form (CPF/1) and submit it to the Board, together with a letter stating the purpose on the company letterhead. You can download the form from our website www.cpf.gov.sg After registering to make voluntary contributions, employers should continue to track the mandatory and voluntary contributions made to ensure that they do not exceed the limit on voluntary contributions. Companies that are increasing the monthly wages, or giving special bonuses must remember to pay CPF contributions on these too.   Additional Medisave Contribution Scheme   Employers can now contribute more to their employees’ Medisave account under the Additional Medisave Contribution Scheme (AMCS). This will help the employers to implement the Portable Medical Benefits Scheme or transfer any outpatient benefits into the CPF. The maximum contribution is $1,500 per employee per year under the AMCS. These contributions are tax-free for the employee, and also not counted against the CPF Voluntary Contribution Limit of $28,800 (to be reduced to $23,760 in 2004). Employers who wish to participate in the Scheme may apply online at www.cpf.gov.sg   Changes To Tax Deduction Limit For The Self-employed   The self-employed currently enjoy tax relief on their compulsory and voluntary CPF contributions, based on their annual net trade income. The maximum tax relief has been $25,920, which was based on the employer and employee contribution rate and the salary ceiling [i.e. 36% x 12 months x $6,000 = $25,920]. With the CPF cut on 1 October 2003, the tax relief limit on CPF contributions from self-employed persons will be adjusted to reflect the change in the contribution rate. The maximum tax relief for 2003 is $25,380 [i.e. 36% x 9 months x $6,000 + 33% x 3 months x $6,000]. The tax relief limit will also be lowered in 2004 to take into account the lower CPF salary ceiling for that year. The tax relief limits for 2003 and 2004 are as follows:   Tax relief limit Rationale Original Limit 36% x 12 x $6,000 = $25,920   1 Jan – 31 Dec 2003 36% x 9 x $6,000 + 33% x 3 x $6,000 = $25,380 The mandatory CPF contribution rate has been reduced from 36% to 33% on 1 Oct 2003. 1 Jan – 31 Dec 2004 33% x12 x $5,500 = $21,780 The CPF salary ceiling will be reduced from $6,000 to $5,500 on 1 Jan 2004. For example, a self-employed person with an annual net trade income of $20,000 in 2003 has a tax relief limit of $7,050 [i.e. (36% x 9/12 x $20,000)+(33% x 3/12 x $20,000)]. Please refer to our website www.cpf.gov.sg for more information or call the CPF Employer Call Centre at 1800-226 3877 (Code 2).