How to Reduce Your Personal Taxes?
Basic Tips for Singapore Tax Residents
Whatever Year of Assessment (YA) it may be, we should start to consider our personal tax strategy early. In Singapore, one of the most expensive cities in the world, financial management can be an important survival tool, and proper tax planning is an integral component of this.
In Singapore, financial management can be an important survival tool, and proper tax planning is an integral component of this for better cash flows positioning.
Should tax planning is exclusively for High Net Worth Individuals (HNWIs) with extensive assets only? As long as you are required to submit tax return, you need to do tax planning. It is worth to note that your personal tax obligations affect your disposable income, and proper tax planning can translate to substantial savings in the long run.
Here are some basic tips to reduce your tax burden. Please note, however, that these are all general in nature. If you have more specific questions and/or concerns, please us to schedule a consultation.
Claim Applicable Tax Reliefs and Rebates
Singapore personal tax rates are progressive, starting at 0% and ending at 22% (YA 2018) for annual incomes exceeding S$320,000. There are a number of reliefs and concessions that will allow you to save on your personal taxes.
Tax reliefs against your assessable income, are given in recognition of your contributions to areas that align with the government’s policies. For instance, certain concessions are available to support parenthood and family formation, caring for aged parents, upgrading professional skills, national service, etc.
Some of the reliefs you can claim include spouse relief, child relief, parent relief, earned income relief, and foreign maid levy relief, among others. All are subject to certain conditions.
Top-up Your CPF (Central Provident Fund)
The CPF Minimum Sum Topping-Up Scheme allows you to claim a tax relief when you top-up your CPF savings. You can also claim the relief if the top-up is made by your employer.
This extends to if you top-up your family members’ retirement account or special account for additional relief, provided that their annual income does not exceed S$4,000 in the preceding year.
For cash top-ups below S$7,000 made by you or your employer, you are entitled to a tax relief equal to the amount of the top-up. For cash top-ups amounting to S$7,000 or more, your tax relief is capped at S$7,000.
For top-ups you make to the CPF of your sibling, spouse, parents or grandparents, you can claim additional relief equal to the amount of cash top-up, capped at S$7,000.
The CPF top-up relief you can make per year is S$14,000 (Maximium).
Contribute to SRS (Supplementary Retirement Scheme)
The Supplementary Retirement Scheme (SRS) is a voluntary scheme to encourage individuals to save for retirement, over and above their CPF savings. Contributions to SRS are eligible for tax relief to be deducted again your chargeable income. Investment returns are tax-free before withdrawal and only 50% of the withdrawals from SRS are taxable at retirement. For Singaporeans and Singapore permanent residents, the maximum contribution allowed is $15300 – YA 2018 per annum, while the cap is $35700 – YA 2018 for foreign Singapore work visa holders.
Voluntary Contribution to Your Medisave Account
Claim a relief for any income earned in the year in which your voluntary MediSave contributions were made. This method helps you to reduce the amount of taxes you have to pay while simultaneously saving up for your healthcare needs.
The amount of relief allowed for voluntary Medisave contributions is limited to the lowest of either of: (1) Voluntary contributions made specifically to the Medisave Account; (2) Annual CPF Limit less the mandatory contribution by you and your employer; or (3) Prevailing Medisave Contribution Ceiling of $48500 ($49800 – YA 2018) less the balance in Medisave Account prior to your voluntary contribution.
Make a Charitable Donation
In Singapore, donations made to any approved Institution of Public Character (IPC) or Qualifying Grant-making Philanthropic Organization are tax-deductible.
In general, you will claim a double tax deduction (i.e. twice the amount of donation) for donations that fall under any of the following categories: (1) cash donations; (2) shares donations; (3) computer donations; (4) artefact donations; (5) public art tax incentive scheme; and (6) land and building donations.
The government will according to economic situation and social benefits to encourage or discourage certain activities to meet national benefits as a whole. Making a charitable donation not only doing a good deed, you also enjoy substantial reduction in your tax obligations. For instance, donations made between 2009 and 2018 that qualify under the double tax deduction criteria will temporarily qualify for 2.5 times tax deduction
Apply for the Not Ordinarily Resident (NOR) Scheme
Enjoy a period of 5 years of assessment (YA) tax benefits if you are qualified under the Not Ordinarily Resident (NOR) scheme.
You must meet both of the following criteria: (1) You were not in Singapore for 3 YAs prior to the year you qualify for the NOR scheme; and (2) You are a tax resident for the YA in which you wish to qualify for the NOR scheme.
Rental Expenses can be Deducted from Rental Income
Rental incomes are taxable, thus the associated expenses are deductible .
Examples of such deductible expenses are: property tax, mortgage interest, fire insurance, maintenance fees to the managing body, or general repairs and maintenance costs. Do the following check:, rental expenses are deductible if they are incurred: (1) solely for the purpose of generating rental income; and (2) during the period of tenancy.
The above are general tips for reducing your Singapore income tax burden. It is always better to plan before the base period ended. If your tax situation is unique, or if your needs are more specific, consider consulting a Singapore tax specialist.