DBS and its misleading adverts

It’s the end of the year! Time to make sure you have done everything necessary to make sure you pay as little tax as you can!

Contributing to your SRS is one of the ways. Banks heavily advertise during this period, all fighting for your SRS contributions, throwing in cash rebates & gifts as bait.

One advert that caught my eye was DBS’s ad. It caught my eye because it was so misleading, filled with catchy words which were filled with half truths.

Fact 1: You can save any amount you want*

I give them credit for the *, though the * kind of contradicts their “any amount” fact. Fact is Singaporeans can only contribute up to $15,300. Definitely not any amount.

Fact 2: You have the flexibility to make withdrawals

Uh … really? They didn’t even bother to put an * for this one. Yes you can make withdrawals, but not like you would at any ordinary bank account!

According to IRAS, there is a 5% penalty involved if you withdraw from your SRS before age 62. And 100% of the withdrawal is then taxable.

Is this a bad thing? Not necessarily. If you make a lot of money it still makes sense to max out your SRS if you can. If for some reason you get retrenched and have exhausted all your savings, you can still withdraw from your SRS as a last resort, and pay that 5% penalty. Better than borrowing from a loan shark.

Fact 3: You can save S$1,071 in taxes

No comment on this one. Amount saved varies, depending on which tax bracket you fall into.

Fact 4: You will enjoy tax-free investment gains

This confused me. SRS is structured such that when you withdraw from age 62, half the amount withdrawn is taxable. This means that if you contributed $200k, and invested it, and made $100k in profits, $150k (half of $300k) is taxable when withdrawn.

“Fact 4” made me go “huh” because it seems to imply that the $100k in profits would not be taxed when withdrawn.

Here’s the thing. According to IRAS, in general, investment gains are not taxable.

Generally, profits or losses derived from the buying and selling of shares or other financial instruments are viewed as personal investments. Payouts from insurance policies are also not taxable as they are capital receipts.

These profits are capital gains and are not taxable. You need not report such gains in your tax return.

Here’s the irony of it all though, capital gains through SRS ARE taxable, once again contradicting their fact.

According to the Ministry of Finance:

Investment returns are accumulated tax-free and only 50% of the withdrawals from SRS are taxable at retirement

So what exactly is DBS advertising? You probably have to dig through their site to find out as it’s not on their SRS promo page. They have the necessary info, just not upfront where it should be.

In conclusion:

Is the SRS a bad scheme? No, not at all! High income earners would appreciate it for the tax savings. I just don’t dig the way DBS is so desperately trying to gain your business with such misleading ads.

If your SRS total is not more than $400k, you essentially pay $0 in income tax if you withdrawn $40k/year and it’s your sole income.

Here’s the catch, you can’t withdraw before age 62 without penalty, and you have to withdraw everything over a 10 year period. This makes sure the government gets some tax ultimately.

If you plan and invest well though, your investment gains should more than cover the tax payable. Besides paying taxes is “your contribution to nation building”.

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