Tax Planning Tips for Singapore Tax Residents | GuideMeSingapore
Discover 5 Ways to Reduce Your Personal Income Tax in this overview of Singapore’s tax system. This is all the information you need at your fingertips.
Tax planning is an essential part of managing your personal finances. If you are a Singapore Citizen, Permanent Resident, or a Foreigner who has stayed and worked in Singapore for 183 days or more that year, you will be subjected to income tax.
For resident taxpayers such as these, personal income tax rates are designed to be progressive. This means that higher income earners pay a proportionately higher tax, with the current highest personal income tax rate at 22%.
Is it possible though, to reduce your taxable personal income? We bring you 5 tax-saving tips to help you manage your filings this year.
1. Claim Employment Expenses
Employment expenses are expenses that you incurred at work that is not reimbursed by your employer. Examples may include entertainment expenses for your clients, transport expenses and subscriptions paid to professional bodies.
Keep complete and proper records of these expenses as these accounts must be supported with invoices, receipts, vouchers, and other documents. Estimates and improper records will not be accepted.
As long as these expenses were incurred while carrying out your official duties, these expenses can be deducted from your employment income.
2. Claim Tax Reliefs & Rebates
Singapore offers tax reliefs and rebates in a multitude of ways to promote various social and economic objectives. Tax reliefs and rebates are allowable if you are a Singapore tax resident; and meet the qualifying conditions.
For instance, tax reliefs have been put in place to encourage parenthood and family development, filial piety, as well as skills upgrading.
(A) Earned Income ReliefThis is an income relief automatically granted to individuals who are employed or engaged in a trade or business in Singapore. Individuals will be given $1,000, $6,000 and $8,000 tax deductions for ages below 55, between 55 and 59 and above 60 respectively.
(B) Course Fees Relief
Singapore actively promotes productivity and encourages continuous learning. Individuals who are therefore keen to upgrade their skills and improve their employability can claim relief for courses, seminars or conferences that are related to their current work, or has led to an approved qualification. However, one must be currently employed, or previously employed.
Courses offering social media, basic website building, and language or photography skills are deemed too general and will not be eligible for tax relief. Individuals can claim up to a maximum of $5,500 worth of course fees, enrolment or exam fees each year.
(C)Top Up Your MedisaveWe know that CPF contributions are tax deductible, but many in Singapore may not fully maximise their CPF-related tax reliefs. Singapore Citizens or Permanent Residents who are employed or self-employed, for instance, can claim tax reliefs when they make voluntary contributions to their Medisave accounts.
However, there is a cap on CPF contributions. As of 2016, the maximum amount of mandatory and voluntary contributions a person can make each year is capped at $37,740 where the amount of tax relief given is the lowest of the following:
- Voluntary cash contribution directed specifically to Medisave Account or
- Annual CPF contribution cap for the year, less Mandatory Contribution (MC)* or
- Prevailing Basic Healthcare Sum(BHS)^, less the balance in Medisave Account before the voluntary cash contribution.
(D) Top Up Your or Your Family’s CPF Accounts
To encourage Singaporeans and Permanent Residents to set aside money for their retirement needs, personal income tax reliefs will be automatically granted if you make cash top-ups in your Special or Retirement Accounts, or in your parents’, grandparents’, spouse’s or siblings’ Special or Retirement Accounts.
The maximum CPF Cash Top-up Relief per Year of Assessment (YA) is $14,000 (maximum $7,000 for self, and maximum $7,000 for family members).
However, there will be no refund for these cash top-ups.
(E) Contribute to Supplementary Retirement Scheme (SRS)
The Supplementary Retirement Scheme (SRS) is a voluntary scheme that encourages individuals to save for their retirement, over and above their CPF savings. It is operated by the private sector, who use the funds to purchase various investment instruments.
When Citizens or Permanent Residents contribute to the SRS, up to a maximum of $15,300 each year, they become eligible for tax deferment. This is because investment returns on these contributions are accumulated tax-free, and only 50% of the withdrawals from the SRS are taxable at retirement.
(F) Handicapped Family Members
As Singapore moves towards an inclusive society, tax deductions are given to recognise individuals who are supporting their handicapped spouses, child, parents, grandparents, or siblings.
Dependents must be staying in Singapore permanently. Taxpayers must have incurred $2,000 or more in supporting their handicapped family members, and, except for siblings, these dependents must be living in the same household. Handicapped parents and grandparents must also be 55 years of age and above, and do not have an annual income exceeding $4,000.
(G) Life Insurance ReliefIndividuals can claim tax relief if they have premiums paid on their own or their wife’s life insurance policies. However, one’s total compulsory and voluntary CPF contributions must not exceed $5,000 in a year.
This tax relief, however, does not extend to life insurance policies purchased by a married woman for her husband. It also does not extend to life insurance policies purchased by parents for their children.
(H) NSman (Self) Relief
To recognise the contributions of National Servicemen (NSmen) to National Service, all eligible operationally ready NSmen are entitled to this tax relief. NSmen must have completed their National Service, and the amount of NSman Self Relief will depend on one’s level of appointment and whether NS activities were performed that work year.
Ex-NSmen or NS-liable ex-regular servicemen above the statutory age are given the base quantum of $1,500. The relief will automatically grant to you based on your eligibility and records sent to us by MINDEF, SPF and SCDF.
Wives and parents of NSmen are also eligible for the relief.
(I) Foreign Maid Levy Relief
To encourage women to stay in the workforce, women who are married, divorced or widowed with school-going children can claim relief for foreign domestic worker levy paid. For instance, if the husband pays this levy at normal rates (e.g. $3,180 a year), the wife may claim Foreign Maid Levy Relief, which is twice the total amount paid by the husband that year (i.e. $6,360).
This relief, however, does not extend to singles and married men.
(J) Parenthood Tax Rebate (PTR)The Parenthood Tax Rebate (PTR) is given to tax residents to encourage them to have more children. To qualify, you must be a Singapore tax resident who is married, divorced or widowed in the relevant year. Eligible parent may claim tax rebates of up to $20,000 per child.
3. Make a Charitable Donation
If you have made cash donations to approved Institutions of Public Character (IPCs) or to the Singapore Government, you will qualify for tax deductions. These donations will be deducted against your statutory income (which includes your employment, trade income, etc.) before arriving at your assessable income.
To build a stronger sense of community, the Government has in place 250% tax deductions for qualifying donations from 1 January 2016 to 31 December 2018. For instance, if your total statutory income in a particular year is $100,000 and you donated $10,000 to an IPC, your assessable income would only amount to $75,000 (i.e. your statutory income less 2.5 times the amount donated).
4. File for Rental Expenses
Rental income is liable to tax in Singapore. However, the Government offers tax deductions on expenses incurred for the purpose of producing the rental income, as well as expenses incurred during the period of tenancy. Examples of such expenditures may include property taxes, fire insurance, repairs and utility expenses.
The amount of deemed deductible expenses allowable is determined based on 15% of the gross rental income derived from the letting of a residential property. In addition, interests on loans taken to purchase that property can be included as a deductible expense.
5. Claim Qualifying Business Expenses
If you are self-employed, which means you fall into categories such as freelancers, hawkers, private tutors, or associate lecturers, expenses incurred while earning your income can be claimed as a tax deduction.
Examples may include public transport costs, advertisements and IT maintenance fees. These expenses must be related to your business, and should be supported by proper and complete source documents.
However, this will not include personal expenses, the purchase of capital assets such as plant and machinery, nor employer CPF contributions, medical expenses and salaries.
On a Final Note
From Year of Assessment (YA) 2018, the total amount of all personal tax reliefs claimed will be capped at $80,000 per YA. This means that it may be worthwhile taking a closer look at our tax yields before making additional voluntary contributions, which could be non-refundable.
However, as it stands, Singapore’s income tax rates for their tax resident are among the lowest in the world. Your first $20,000 is tax-exempted, while the tax paid by top-tier earners is just 22 per cent of their annual income – an amount the average earner in countries like Australia pays.
This is yet another reason why Singapore is dubbed the most business-friendly economy in the world, and remains the preferred destination for business incorporation.