All Singapore citizens or Singapore Permanent Residents who reside in Singapore are eligible to pay income tax. Foreigners who have stayed or worked in Singapore for more than 183 days preceding the year of assessment are eligible to pay tax as well. Singapore’s personal income tax rates for resident taxpayers are progressive.
In other articles, I have written about ways to increase income. Let’s not forget that with an increment in income comes an increment in tax payable. In this article, we explore the legal ways to decrease your tax payable.
All income earned in or derived from Singapore is chargeable to income tax.
Income earned may come from different sources such as:
Employment, Trade, Business, Profession or Vocation
Property or Investments – this includes dividends, gains from sale of property, shares and financial instruments, interest and rent from property
Other Sources of income such as annuities, royalties, winnings (e.g 4D or Toto), estate or trust income, charges (e.g alimony, maintenance payments), withdrawal from Supplementary Retirement Scheme (SRS)
Breakdown of Resident Tax Rates in Singapore
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Ways to Reduce Your Tax Payable in Singapore
1. Make a Donation
Donation includes cash donation, artifacts, sculpture, art piece, land, building, computer, SGX-listed shares and units in unit trusts. Do note that cash donations have to be made to an approved Institution of a Public Character (IPC) or the Singapore Government for causes that benefit the local community to be eligible. Other requirements include you not receiving any material benefits, such as advertising exposure or other gifts in kind. Hence, charity runs that gives out goodie bags to participants are not eligible. A donation made to an approved institution would enable the donor to claim tax relief of 250% of the amount donated. That means, for every $1 donated, your taxable income will decrease by $2.50. Donations have to be carried out in the year preceding the year of assessment. Some charities accept Credit Card payment for one time or recurring donations, making it really easy for donors to give.
However, before deciding which charitable organisation to give to, do perform some background checks on the charity. Factors that I look out for are how much of the cash donation actually goes into helping the recipients. As a general rule of thumb, the bigger (or more established) the charities, the lesser amount of your donation will go directly to the recipients. Because like any organisations, the charity organisation has to pay for overheads such as infrastructure and full time employees.
This tax deduction will only last till 31 December 2021.
2. Top up CPF Special Account
Topping up your Special Account or your family members’ Special Account (Retirement Account if above 55 years old) will enable you to qualify for tax reliefs for your income tax. Every dollar contributed voluntarily to the CPF enables you to be eligible for dollar-for-dollar tax relief for your income tax. However, in order to receive tax relief for spousal and sibling top-ups, your recipient must not have an annual income exceeding SGD $4,000. This income ceiling does not apply for spouses or siblings who are handicapped. The maximum tax relief you can claim under this category is SGD $14,000 – SGD $7,000 for topping up your own account and SGD $7,000 for topping up your family members’. As per CPF, savings in Special Account are invested in Special Singapore Government Securities (SSGS) which currently earn either 4% per annum or the 12-month average yield of 10-year Singapore Government Securities (10Y SGS) plus 1%, whichever is the higher, adjusted quarterly. It is a good deal to earn 4% per annum in a virtually risk free environment. while enjoying tax reliefs.
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3. Top up Medisave
Topping up your Medisave account is another way to reduce your tax payable. You can use your Medisave account to save up for your medical expenses and pay for your integrated medishield premiums. Your Medisave account earns 4% interest per annum. You can continue to make top ups to your Medisave account as long as you have not reached your Basic Healthcare Sum. According to CPF, the Basic Healthcare Sum (BHS) is the estimated savings you need in your MediSave Account for your basic subsidised healthcare needs in old age. For CPF members aged below 65 in 2020, the prevailing BHS is SGD $60,000, and will be adjusted yearly to reflect the changing needs of the population.
4. Contribute to Supplementary Retirement Scheme
Supplementary Retirement Scheme (SRS) is a voluntary scheme to encourage individuals to save for retirement, on top of their CPF savings. Make voluntary contributions to your SRS account to qualify for dollar-for-dollar tax relief. Investment returns are tax-free before withdrawal.
However, if you are still young, it may be advisable to save up your cash for nearer term goals first, such as buying a house or starting your family. This is because if you withdraw your SRS funds before the statutory retirement age of 62, you have to pay 100% tax of the sum withdrawn plus a 5% penalty. If you withdraw SRS funds after the statutory retirement age of 62, only 50% of the amount withdrawn is taxable.
A personal income tax relief cap of SGD $80,000 applies to the total amount of all tax reliefs claimed (including relief on SRS contributions). For Singaporeans, the yearly maximum SRS contribution is SGD $15,300.
5. Attend Courses to Upgrade Yourself
You may claim course fee relief if you have attended any course, seminar or conference relevant to your current employment, or leading to an approved academic, professional or vocational qualification. Fees that are claimable include aptitude test fees (for computer courses), examination fees, registration or enrolment fees; and/or tuition fees. This course relief is to encourage individuals to continue to upskill and stay relevant even though they have left school.
6. Purchase Life Insurance
The Singapore government provides tax reliefs on Life Insurance. Do take note that there are caveats on this though, such as the insurance premium paid is on your own life insurance policy; your total compulsory employee CPF contribution, self-employed Medisave or Voluntary CPF contribution and voluntary cash contribution to your Medisave account in the year of assessable income was less than SGD $5,000. If you fulfil the requirement, you may claim the lower of the difference between SGD $5000 and your CPF contribution or up to 7% of the insured value of your own/your spouse’s life, or the amount of insurance premiums paid.
7. Keeping tabs on Employment Expenses
Employment expenses are defined as expenses that are ‘wholly and exclusively’ incurred in the production of your employment income. The expenses that may be allowed include expenses incurred while carrying out your official duties, expenses not reimbursed by your employer, the expense was not capital or private in nature.
You have to keep complete and proper records of all expenses incurred for 5 years.
Source: IRAS, CPF