Mothers - investing for life

LAST Sunday was Mother's Day. It also marked the end of my son's first week at playsch

Although it was only a two-hour trial session, his mother was not allowed to remain in school.

It was probably a lot more emotional for my wife than for my son as she lingered outside the school gates, straining her ears and listening for the familiar cries or perhaps the occasional laughter.

It was another milestone in the journey of life for my young son, and a milestone for my wife and I as parents.

Special meaning

Mother's Day holds special meaning for us, as our son was born on this day two years ago.

After a “stressful” week for the three of us, perhaps this is what my son might say if he could articulate it himself (Of course, I am making the assumption that I can read his mind and his heart): “My mother is a source of inspiration. She sacrificed her career to be with me every step of my way. I am indeed privileged. My mother is my pillar of strength. I was so relieved when I saw her after my first day at school. I tried to be strong, but I was very scared too.

“My mother is a source of comfort. Her kisses will make all sorts of pain go away. I am always comforted by her magical touch.”

Many would remember an old Chinese children's song that glorifies a mother's love for her children. Translated in English, it goes something like this:

“In the world only mothers are good. Children with mothers are like precious treasure. When one is in the embrace of one's mother, it is a blessing without compare...”

As far as I can remember, there has not been a song written about fathers with the same level of importance as when compared to songs written about mothers. Perhaps, in the past, fathers were the breadwinners and mothers the caregivers.

However, over time, fathers are becoming more involved in the parenting process.

In fact, I know of someone (let's call him EJ) who took a break from his career to spend time with his children. Now that his children are grown up, he has gone back to work.

A well-known personality and an accomplished journalist, he shares the opportunity cost of being at home with his children.

But he says it is well worth it. He went through the experience of seeing his children grow up first-hand.

From a financial perspective, the sacrifice or opportunity made by the stay-home caregiver can be easily computed in dollars and cents.

It is a very simple computation - monthly salary plus benefits plus annual bonus multiplied by the number of years, factoring in inflation and potential increment. This cost can be significant.

Intangible cost

On top of that, sacrifices made in the form of lifestyle adjustments, which are almost always required when a family with children changes from dual income to single income, also have to be taken into account.

This intangible social/family cost is less easy to compute but can be easily appreciated by most families.
Some might think that being a full time stay-home parent equates a life of luxury. My wife would be the first to refute that.

She is not living the life of a “tai tai”. For stay-home parents, life is physically tiring, emotionally draining and financially straining. No pay, no days off and no medical leave.

But just like EJ, my wife knows that it is indeed a privilege to be a stay-home mother. One does not get to hear from the maid or the caretaker how one's child took his very first step, how he articulated his first word, or even how he fell off the bed. My wife experienced all these first-hand.

Hence, allow me to be a contrarian and turn this equation of economic and social costs upside down. Spending time with our children is not a cost, but an investment.

A cost or investment?

What is the difference between a cost and an investment? A cost is an expense and outlay, just like a teh tarik, which costs RM1.40, or a holiday costing RM2,000.

But an investment is like a RM20,000 master's degree programme, a RM100,000 unit trust investment or a RM1mil shophouse.

When we think of investments, we automatically think of the payback and returns.

EJ had invested in his children and my wife is still investing in our child. Not only does EJ not regret his choice, he proudly proclaims that his “payback and returns” are his emotional wealth and experiences that are unique to him alone.

No amount of money can replace or replicate something as intangible as that. In fact, he says that he would do the same all over again.

My wife echoes that sentiment, and I know many stay-home parents will agree too.

To them, Mother's Day and Father's Day are not just days for them to receive a rose, a box of chocolates or a special meal.

It is a day when one receives the annual statement of one's time-honoured and privileged investment made in the names of one's own children.

There is no perfect guide to parenthood; no “control-alternate-delete” function to reboot and restart. Parenthood is tough and sometimes mistakes are made.

However, by being there to guide and love our children, hopefully we can raise them up to be the better person we all hope to be.

“Investment” is not always about money, and I quote Joyce Maynard: “It's not only children who grow. Parents do too. As much as we watch to see what our children do with their lives, they are watching us to see what we do with ours. I can't tell my children to reach for the sun. All I can do is reach for it, myself.”

To all mothers, hope you had a happy Mother's Day. And as for fathers, our moment of recognition will come next month!

COMMENT By TAY HAN CHONG ■Tay is senior vice-president and senior head of UOB's personal financial services division.

Basic shelter versus investment instrument

THE strong rebound in property markets of various Asian cities like Shanghai, Hong Kong, Singapore and Kuala Lumpur from one of the worst modern-day financial crisis shows that property has multi-functions as a basic shelter over one's head and an investment instrument.

A person's address is also increasingly becoming a gauge of one's financial capability and social status.
That's why luxurious houses in highly-sought-after addresses are still selling like hot cakes in the region despite the prevailing uncertainties in the global economy.

It shows there is much liquidity in the system and property investment is probably mopping up quite a big chunk of the surplus cash.

Asians are well known to be big savers and it is not surprising that the region is now leading the global economic recovery.

In Singapore, there has been a hike in demand since late last year and even mass housing are fetching prices of S$800 to S$1,000 per sq ft while the luxurious range are from S$2,000 to S$4,000 per sq ft.

Despite the rising prices, both Singaporeans and foreigners are snapping up properties which further fuelled price increases and caused worries over a potential asset bubble.

One of the reasons for the huge appetite could be the city-state's growing status as a global city and the rising number of high net-worth foreigners making Singapore their home.

What they find palatable include Singapore's personal safety and security, cleanliness, good governance, ease of travel through its smooth and integrated public transport system, and a tolerant and enterprising society.

As a Malaysian investor with a growing presence in the island-state, YTL Corp Bhd managing director Tan Sri Francis Yeoh said in his speech at the YTL Concert of Celebration at the Singapore Botanic Gardens last Saturday: “The world loves doing business in Singapore because it upholds the rule of law, welcomes talents and skills, and excels in acceptance and tolerance.”

To prevent a rush for landed houses in Singapore, foreigners are only allowed to buy such properties in Sentosa Cove and not in other parts of the country.

There is no restriction on the purchase of condominiums and apartments by foreigners, although only permanent residents can buy public housing.

Likewise, in its effort to promote itself as a real estate destination for foreigners, Malaysia should look at the holistic and integrated approach to the whole exercise.

The efforts will be more effective if prompt actions are taken to improve the quality of life for the local people and these include security and safety, good governance, integrity, and a well-balanced and tolerant society.

Of course, the other important factors include efficiency of the public transport, overall cleanliness and general well-being.

Foreigners are usually attracted to destinations that have rich natural living cultures and practices, and that is why places like Bali and Phuket are havens for them.

It is fine to promote a growing appetite for property investment among the people but it should not be at the expense of sky-rocketing prices that will affect the average people.

Bank Negara's move on Thursday to raise the overnight policy rate by another 25 basis points shows that the Government is concerned that a rising leverage on speculative activities could cause a financial imbalance in the banking system.

Obviously, the Government fears that the active mortgage market will fuel an asset bubble.

This is because a prolonged cheap mortgage environment will tend to enhance speculative activities in the property market. Right now, the upper-middle customers are buying mainly for investment purposes.

And with the intense competition among banks to use up their high liquidity, lending activities for property purchase is bound to continue.
Perhaps the next increase should be by at least 50 basis points to bring it closer to the normal pre-crisis rates.

THE REAL ESTATE WITH ANGIE NG
angie@thestar.com.my

Deputy news editor Angie Ng hopes the growing population of borderless citizens who have homes in different parts of the world will promote greater understanding and respect among people of all races.

The importance of tax planning

With the June 30 deadline for submission of corporate tax returns looming, chartered tax adviser and author of Malaysian taxation books, Richard Thornton, wants to remind small and medium enterprises (SMEs) the importance of tax planning.

Considering that more than 90% of Malaysian businesses are SMEs, Thornton says it is imperative that the owners are aware of the tax rules applicable to them so that these can be factored into their business plans.

“A lot of businesses are carried out by partnerships or sole traders, and these are the ones that need tax advisors and tax knowledge. It is about structuring business transactions in such a way that the incidences of taxes is mitigated in a lawful way,” says Thornton. “Tax planning is permitted but it is largely overlooked and left to tax agents.”

For example, a wife makes a good business partner. A married couple pooling resources makes sense, but to reduce their tax liability, the husband and wife should be assessed separately as this allows them to claim more personal reliefs than if they were to opt for a joint assessment.

Author and chartered tax advisor Richard Thornton with a copy of his 100 Ways to Save Tax in Malaysia for Small Businesses.

 

“She also benefits from the scale rates of tax and if her chargeable income is not more than RM35,000 from a tax rebate. If she is in the business, she also becomes self-employed and the income can be divided between both spouses, and less tax is paid,” he writes in 100 Ways to Save Tax in Malaysia for Small Businesses. Another example is treating the car as a business expense.

If the vehicle is bought on hire-purchase, the finance cost can be deducted as a business expense and a capital allowances deduction can be claimed for the purchase price, although there is a limit.

“Using more than one vehicle, as most Malaysians do these days, gives businessmen the opportunity, or burden, according to your point of view, of bringing several vehicles into the mix,” he writes.

Thorntons answers other questions pertaining to taxes for SMEs.

Why is it important for SMEs to know the workings of the tax system considering that there are tax experts to help them?

Many SMEs do not have, or cannot afford, regular access to tax experts and may only have contact with a tax agent around the time of submission of the annual tax return.

To be effective, tax planning needs to be done in advance. If a manager has a good knowledge of the tax system, he can save the business a lot of money.

Is there a shelf life to your book 100 Ways to Save Tax in Malaysia for Small Businesses?

Not at all. It is completely up to date, with the latest legislation effective for 2010, and has many tips on tax strategies that will reduce the burden of tax payable in 2011 and after.

Right now, there is no separate tax structure for SMEs. They follow either the individual or the corporate tax structure. Would it be more viable if SMEs have their own tax structure and why?

Small businesses often grow into big ones and I am not in favour of a formal structure that would place a firewall around them.

Also, we have to remember that SMEs may start out as sole traders or partner enterprises and go corporate after they grow to a suitable size. This gives them flexibility to opt for the tax structure that suits them at the time, whether individual tax as a family business or corporate income tax.

But having said that, I would like to see more of the tax incentives that apply to companies made available to non-incorporated businesses.

Are there any Asian countries with a special tax structure for SMEs and how successful is this?
I am not aware of any.

What are the differences between an individual tax structure and a corporate tax structure?

They relate mainly to the extraction of profits. Sole traders and partners have no constraints on the withdrawal of profits whether by way of salaries or other benefits.

However, they are liable for tax on the whole of the profit.

A company has to pay regard to the “corporate veil” because the owners of the company are not the same as the company itself.

Owners receive dividends, which are paid out of profits, after the company has paid tax on them and they have no personal tax liability on them. However, if the shareholders are also directors, they may receive directors’ fees on which they, and not the company, pay tax.

Because there is no separate structure for SMEs, how will an SME know which one to choose – an individual or a corporate structure – in order to best mitigate taxes? 

Tax-wise, the decision is usually made by reference to the withdrawal of profit comparisons and in particular their influence on comparative tax rates.

At the top end, there is little difference with companies being liable at 25% and individuals at 26% at the present time but in the fledgling stage, a business is often looking at much smaller amounts and maybe at losses, which can have significantly different tax consequences for corporate and non-corporate businesses.

How will the impending goods and services tax (GST) impact SMEs? 

A non-registration threshold of RM500,000 per annum has been mooted and many small businesses will welcome this as a way to avoid the burden of compliance, which will be quite heavy for all businesses.

Besides applying tax on goods and services, there is the need to keep track of what they pay to suppliers so that they can obtain the tax credits they are entitled to.

What can SMEs do to mitigate this (in relation to the GST)?

SMEs that cannot keep below the registration threshold should make sure that they are well informed on the workings of the GST system as early as possible and set up their administrative and accounting systems in good time so as to minimise the problems of the changeover.

Y THEAN LEE CHENG
leecheng@thestar.com.my