Double your income but not double your income tax.

This new blog post has an old theme and that is how we can pay less income tax even as we increase our income.

I have received my income tax notice of assessment. 

Tax payable: 

$1,606.02.




This is much more than what I paid last year which was $1,133.23. 

About 41.7% more, in fact! 

Why is this so? 

It has to do with the missing generous income tax rebate which was given in the year before.






Well, considering that my income in 2013 was almost twice as much as my income in 2012, $1,606.02 is not too much to pay, I suppose.

How is such a low income tax possible? 

After all, someone who makes $250,000 per annum would very likely have to pay an income tax of more than $20,000, wouldn't he?




OK, regular readers can skip the following pointers but if you are new to my blog, here are a few things you can consider doing:

1. Invest to receive non-taxable income. 

(For those who have the temperament and the know-how, trading could make some good money too.)




2. Start a Supplementary Retirement Scheme (SRS) account and make annual contributions to reduce taxable earned income. 

(For those who have yet to max out their CPF-SA, consider voluntary contributions up to a maximum of $7,000 a year. To avoid confusion, this is called a Minimum Sum Top Up or MSTU.)
 



3. Donate more to charitable organisations recognised by the government and enjoy 2.5x tax deduction, if we can afford to do so.

Mystery is solved.

The tools to help us build our wealth are out there and if we are able to help the less fortunate in the process, we should do it.




Don't say we don't have enough money or are not wealthy enough to help the poor. 

If we have some spare money to invest in the stock market, we are more fortunate than many out there. 

Even a $50.00 donation can do wonders. 

Not a big sum to most of us but it could mean a lot to the needy. 





If you don't know where to start, here is a suggestion: Singapore Children's Society.

Everyone's life should be better. 

If we do the right things, everyone's life could turn out better. 

Paying less income tax even as we increase our income will certainly help.

Reference: IRAS income tax rates.




Related posts:
1. Make more money, do good, pay less tax.
2. Ways to reduce income tax.
3. Voluntary contributions to CPF.
4. SRS- A brief analysis.
5. Build a bigger retirement fund: CPF-SA.

Croesus Retail Trust: What is the forward yield?

Not feeling 100% tonight. So, I am just going to zoom in on what bothers people most and skip the rest of the stuff which look OK anyway.

So, what bothers people most? The latest quarterly DPU of 1.76c.

If we were to simply annualise 1.76c, we would get 7.04c and based on a unit price of 93c, that is a distribution yield of only 7.57%. This definitely falls short of the IPO forecast of an 8% distribution yield.

An 8% distribution yield based on 93c would mean a DPU of some 7.44c per annum or 1.86c per quarter. Yikes! With only 1.76c, we have a shortfall of some 0.1c and this is after purchasing 2 more properties in the last quarter too!

There is a simple explanation. There are costs involved in the purchase of those 2 malls and they only contributed to income in the month of March. Of course, we can say something about the Japanese Yen being weak but currency hedge has already been put in place by the management.

In the quarter April to June 2014, the 2 newly acquired malls will contribute a full quarter of income. This will bump up quarterly DPU. Annualising that DPU will more accurately reflect the annual DPU and hence the distribution yield of the Trust.

The monthly NPI for the 2 newly acquired malls is estimated to be JPY 72.2 million. Refer to page 14 of the slides presentation.

With distribution income for January to March 2014 at JPY 619.78 million which gives us a DPU of 1.76c, an additional NPI of JPY 144.4 million (JPY 72.2 million x 2) will have some positive impact on DPU for the quarter April to June 2014. Even assuming that costs go up by some JPY 50 million (additional management fees and financial costs), we would still be looking at some additional JPY 94 million which can be distributed to unit holders. This is an increase of about 15%. So, we are looking at a DPU of possibly 2.024c.

Annualising 2.024c gives us 8.096c or a yield of 8.7% based on a unit price of 93c.  This is some 8.75% higher than the 8% distribution yield dangled during the Trust's IPO.

Having said this, I won't buy more at 93c a unit. It could be that I have anchored myself at 87c and 87.5c, my entry prices, but I feel that 93c is not all that compelling.

Wait a minute, wasn't the distribution yield estimated at 8.5% when I initiated my first long position at 87c last November? Why do I now say that an 8.7% yield is not compelling? Well, back in November, the gearing level was about 42%. Now, at 53.5%, to a simple minded person like me, getting another 0.2% in yield just doesn't cut it.

For a Trust that has a gearing level of 53.5%, I need a much higher distribution yield to be able to sleep better at night. Everything else remaining equal, a 9.5% distribution yield could, perhaps, entice me to add to my long position.

See presentation slides: here.

Related posts:
1. Croesus Retail Trust: 87c.
2. Luz Omori and Niz Wave I.