CPF Changes for 2004 - New limit on Voluntary Contributions , Additional Wage Ceiling and Self -Employed tax relief amount

News Release by: Central Provident Fund Board 19 NOVEMBER 2003 --

LIMIT ON VOLUNTARY CPF CONTRIBUTIONS

With the changes in the long-term CPF contribution rate and lower salary ceiling, the limit on voluntary CPF contributions will be lowered with effect from 1 January 2004. The new limit will be $23,760 [12 months x $5,500 x 36%], compared to $28,800 in year 2003. Table 1 below shows the amount of voluntary contributions a CPF member can make, taking into account the new limit.

Table 1: Revised Voluntary Contribution Limit for 2004

Amount of Mandatory Contributions (MC) Maximum amount of Voluntary Contributions (VC) MC < $23,760 VC = $23,760 – MC MC >=$23,760 VC = $0

ADDITIONAL WAGE CEILING FOR PRIVATE SECTOR

With effect from 1 January 2004, the Additional Wage ceiling for the private sector will similarly be revised. Table 2 shows the simplified formula. Please also see Annex A for the current Additional Wage ceiling.

Table 2: Revised Additional Wage Ceiling for 2004

Additional Wage Ceiling = $93,500 – Total Ordinary Wages Subject to CPF Contributions in the year1

1 the monthly ordinary wages subject to CPF is capped at $5,500. The total ordinary wages subject to CPF contributions is the sum of monthly ordinary wages subject to CPF, and capped at $66,000.

The maximum amount of wages that will attract CPF contributions in 2004 will be $93,500 which is based on 17 months of wages at the new salary ceiling of $5,500. The lower ceiling is in line with the objective of CPF to cater to the 10th to 80th income percentile of the population. Please see Annex B for examples on how to calculate the Additional Wage Ceiling.

TAX RELIEF FOR CPF CONTRIBUTIONS FOR THE SELF-EMPLOYED

With the reduced CPF contribution rates from 1 October 2003, the tax relief for CPF contributions from self-employed members will also be lowered from $25,920 to $25,380 for 2003. The tax relief cap will be further lowered in 2004 to $21,780 due to the lower CPF salary ceiling. Table 3 below shows the calculations of the new caps.

Table 3: Tax relief caps for 2003 and 2004

Period Current/Prevailing Cap Revised Cap Rationale 1 Jan 2003 – 31 Dec 2003 36% x 12 x $6,000 = $25,920 36% x 9/12 x $72,000 + 33% x 3/12 x $72,000 = $25,380 The mandatory CPF contribution rate has been reduced from 36% to 33% from 1 Oct 2003. 1 Jan 2004 – 31 Dec 2004 - 33% x $66,000 = $21,780 The CPF salary ceiling will be reduced from $6,000 to $5,500 from 1 Jan 2004.

To illustrate, a self-employed contributor with an annual trade income of $20,000 in 2003 would be allowed a tax relief cap of up to $7,050. i.e. [(36% x 9/12 x $20,000)+(33% x 3/12 x $20,000)]. This is because only the first 9 months’ trade income is subject to the old contribution rate of 36%. The new contribution rate of 33% will apply for the remaining 3 months.

ENQUIRIES

For Voluntary Contribution Cap and Additional Wage Ceiling Please log on to the CPF Website www.cpf.gov.sg or call CPF Employer Call Centre at 1800-226-3877 For Tax Relief on CPF contribution by the Self-employed Please call IRAS Hotline at 1800-356-8611

Annex A

ADDITIONAL WAGE CEILING BEFORE 1 JAN 2004

Since 1 January 1990, there is an Additional Wage Ceiling on the wages of employees who earn more than $100,000 a year in Total Wages2 . This ceiling is the maximum amount of Additional Wages on which CPF is payable. This Additional Wage ceiling is calculated as follows:

Existing Additional Wage Ceiling

Total Ordinary Wages3 for the year Additional Wage Ceiling <= $72,000 $100,000 – Total Ordinary Wages > $72,000 40% of Total Ordinary Wages

The amount of CPF payable on the Additional Wages will be based on the prevailing CPF contribution rates.

2 Total wages is the sum of the employee’s Ordinary Wages for the month and the Additional Wages paid to him in that month. 3 Ordinary Wages are wages due or granted wholly and exclusively in respect of an employee's employment in that month and payable before the due date for payment of CPF contributions for that month.

Annex B

TO CALCULATE THE REVISED ADDITIONAL WAGE CEILING FROM 1 JAN 2004

Example:

Assumptions:

Both Employees A and B are below 55 and earn the following wages in 2004:

Total Ordinary Wages (TOW) = $70,000 Total Additional Wages (TAW) paid in Sept 2004 = $40,000 Total Wages (TW) =$110,000

Breakdown of wages paid to Employees A and B

Employee A Employee B Month OW paid ($) OW subject to CPF ($) AW paid ($) AW subject to CPF ($) OW paid ($) OW subject to CPF ($) AW paid ($) AW subject to CPF ($) Jan 5,500 5,500     3,000 3,000     Feb 5,500 5,500     3,000 3,000     Mar 5,500 5,500     3,000 3,000     Apr 5,500 5,500     3,000 3,000     May 5,500 5,500     4,000 4,000     June 5,500 5,500     4,000 4,000     July 5,500 5,500     6,000 5,500     Aug 5,500 5,500     8,000 5,500     Sep 5,500 5,500 40,000 27,500 9,000 5,500 40,000 40,000 Oct 6,500 5,500     9,000 5,500     Nov 7,000 5,500     9,000 5,500     Dec 7,000 5,500     9,000 5,500     Total 70,000 66,000 40,000 27,500 70,000 53,000 40,000 40,000

Employee A Employee B Total Ordinary Wages (TOW) subject to CPF $66,000 $53,000 Additional Wage (AW) Ceiling $93,500 - $66,000 = $27,500 $93,500 - $53,000 = $40,500 Total CPF contributions on OW $66,000 x 33% = $21,780 $53,000 x 33% = $17,490 Total CPF contributions on AW $27,500 x 33% = $9,075 $40,000 x 33% = $13,200 Total CPF contributions for FY 2004 $21,780+$9,075 = $30,855 $17,490+$13,200 = $30,690

Notes:

1. Although Employees A and B both earn TOW of $70,000, their AW Ceilings differ as their TOW on which CPF is payable is different.

2. CPF is payable on the actual AW paid, or the AW Ceiling calculated, whichever is lower.

3. FAQ