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CPF top-up for tax relief in Singapore: How and why you should do it
You can also top-up the CPF accounts of your loved ones and enjoy more tax relief.
SINGAPORE — The Central Provident Fund (CPF) system is a comprehensive savings plan for Singaporeans and permanent residents (PR) that can be used to fund your retirement, housing, and healthcare needs.
While CPF contributions are mandatory for majority of workers in Singapore, a significant aspect of the CPF system is the option to top-up your accounts – or the accounts of your loved ones – voluntarily. Not only will this enhance your retirement savings, but doing so will allow you to enjoy tax relief. You must be at least 16 years old to make these cash top-ups.
In this article, we'll explain why you should top up your CPF accounts and how to get it done.
Why should you top up CPF accounts?
There are several benefits from topping up your – or your loved ones' – CPF accounts. Firstly, it boosts your retirement nest egg and allows you to benefit from compounding interest. Topping up your Special Account (SA) or Retirement Account (RA) if you are 55 and above also allows you to receive higher monthly payouts during retirement.
Additionally, you can earn risk-free interest rates by leaving your cash in your CPF accounts. By topping up your SA or RA, you can earn interest rates of up to six per cent per annum on your savings.
Finally, making a cash top-up to CPF accounts allows you to enjoy tax relief of up to S$16,000 per calendar year. You can enjoy an equivalent amount of tax relief of up to S$8,000 per calendar year if you make a cash top-up to your account and an additional S$8,000 if you make a cash top-up to the accounts of your loved ones.
If you are a aged between 55 and 70, you can receive a dollar-for-dollar matching grant from the government for any cash top-ups made to your RA under the Matched Retirement Savings Scheme (MRSS), up to an annual cap of S$600.
For tax relief purposes, the CPF defines loved ones as your parents, parents-in-law, grandparents, grandparents-in-law, spouse and siblings. Therefore, a top-up made to your child does not qualify for tax relief. Note that tax relief is only for the giver and not the recipient.
How much can you top up CPF accounts?
The maximum amount of top-ups you can make or receive depends on your age and the amount of CPF savings you have. For those aged below 55, the amount is calculated by deducting your SA savings and any amount withdrawn from your SA for investments from the current Full Retirement Sum (FRS). For those who turn 55 in 2023, the FRS is S$198,800.
Those aged 55 and above can determine the maximum amount of top-ups allowed by deducting their RA savings from the current Enhanced Retirement Sum (ERS). The current ERS for 2023 is S$298,200.
While you are allowed to make a lump sum payment that will max out your CPF top-ups, do note that the maximum tax relief of up to S$8,000 per year will apply when you top up your SA or RA, and an additional S$8,000 if you top-up your loved ones' SA or RA. This means that even if you decide to top up to the limits of your FRS or ERS, the maximum tax relief you can enjoy is still capped at S$16,000 per calendar year.
A personal income tax relief cap of S$80,000 applies to all tax reliefs, including the combined S$16,000 tax relief on cash top-ups made to your or your loved ones' CPF accounts. The maximum S$16,000 tax relief on CPF cash top-ups is also shared with any contributions made to the MediSave Account (MA).
Also read: CPF minimum interest rate of 4% extended 1 more year till 31 December 2024
Also read: CPF nomination not automatically revoked upon divorce, current rules under review
How to top up CPF accounts?
Topping up is a straightforward process that can be done via two methods. The first way is to top-up through the CPF Mobile app. Log in using your SingPass and tap on the menu icon in the top left corner. Next, tap on 'Services' followed by 'SA/RA Top-Up'. Choose 'CPF Transfer' if you decide to top-up with that method, or choose 'Cash Top-Up', submit your application and make the payment via PayNow QR or OCBC Digital for cash top-ups.
The second method is to top-up via the CPF website. Simply head to cpf.gov.sg/rstuform and log in using SingPass. Choose either 'CPF Transfer' or 'Cash Top-Up'. If you choose the latter, you can select either PayNow QR or GIRO to make the payment.
Note that only cash top-ups to CPF accounts are eligible for tax relief. Topping up via CPF transfers is not eligible for tax relief, as CPF contributions are already tax-deductible. As such, transferring money from one CPF account to another will not be eligible to enjoy tax benefits.
How to top up spouse CPF account?
To top-up your spouse's CPF account, you can either use the CPF Mobile app or website and follow the steps as mentioned earlier, select the option for another person, and enter your spouse's details. You will need your spouse's NRIC if you are making a cash top-up or CPF transfer. If you are making a CPF transfer to your spouse for the first time, you will need your marriage certificate if your marriage is not registered in Singapore.
For cash top-ups, you will only be eligible for tax relief if your spouse's income in the previous year does not exceed S$4,000 or if he or she is handicapped. This would include income from bank interest, dividend and pension, investment, rental, or directorship income. For handicapped status, examples would be someone with visual impairment, loss of hearing, loss of limb or dementia.
The CPF Board defines loved ones as your parents, parents-in-law, grandparents, grandparents-in-law, spouse and siblings.
How to top up a CPF account for parents?
Topping up for your parents is an effective way to support their retirement while enjoying tax benefits. Similar to spouse top-ups, topping up for parents can be done through the CPF Mobile app or website. You will need your parents' NRIC to complete the cash top-up or CPF transfer.
You will also need to make a one-time submission of your birth certificate if you are making a CPF transfer to your parents for the first time. If your parent is under 55, the top-up goes to their SA. Otherwise, it goes to their RA.
How to top up a CPF Retirement Account (RA)?
Individuals aged 55 and above receive top-ups in their RA. You can make cash top-ups to any SC or PR's RA and enjoy tax relief. For topping up via CPF transfers, which are not eligible for tax relief, you can only transfer them to yourself or to your loved ones who are citizens or PRs.
Cash top-ups or transfers can be made via the CPF Mobile app or through the CPF website. You will need the recipient's NRIC if you are making a cash top-up. Note that CPF transfers to RAs can only be made to yourself or your loved ones.
How can employers top up CPF account for employees?
If you are an employer, you can boost your employees' retirement savings by making cash top-ups to their SA or RA on their behalf and enjoy tax relief. You will be eligible for a dollar-to-dollar equivalent of tax deductions for the cash top-ups made.
The cash top-up made by an employer will be included as part of the employee's taxable income, and the employee will receive tax relief of up to S$8,000 per calendar year. The tax relief received by the employee also takes into consideration any CPF cash top-ups made to his or her own SA, RA or MA.
Employers who would like to make a CPF contribution to an employee's MA should do so under the Additional MediSave Contribution Scheme (AMCS) to be eligible for tax deduction. AMCS contributions are tax-free for employees.
To make the cash top-up for employees, employers are required to have a Corppass to begin the application. Additionally, employers will need their company's CPF submission number as well as the employee's NRIC or CPF account number. The application can be done through the CPF website.
How to claim tax relief for CPF account top-up?
Tax relief is automatically processed when you make a CPF cash top-up. There is no need to file or claim tax relief for your cash top-up, as CPF will inform the Inland Revenue Authority of Singapore (IRAS) if you meet all the eligibility criteria for tax relief.
All you need to do is to ensure the cash top-up is completed before 31 December. Once approved, the tax relief will be reflected in your annual tax assessment.
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