Basic Tips for Singapore Tax Residents
The dawn of another calendar year means that tax season is just around the corner. Come April, we will be required to file our income tax returns. Thus, as we settle into the new year, perhaps we should start to consider our personal tax strategy for Year of Assessment (YA) 2016.
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.
A common misconception is that tax planning is exclusively for High Net Worth Individuals (HNWIs) with extensive assets. On the contrary, middle-class individuals stand to benefit from a good tax strategy as well. Remember, your personal tax obligations can impact your disposable income, and proper tax planning can translate to substantial savings in the long run.
To help you reduce your personal tax burden, Singapore tax specialist Rikvin provides some basic tips in this article. Please note, however, that these are all general in nature. If you have more specific questions and/or concerns, please contact 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 2017) for annual incomes exceeding S$320,000. On top of this, the Republic provides a number of reliefs and concessions that will allow you to save on your personal taxes.
Tax reliefs, or standard deductions against your assessable income, are given in recognition of your contributions to areas that align with the government’s social policies. For example, certain concessions are available to support parenthood and family formation, caring for aged parents, upgrading professional skills, etc.
For YA 2016, 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.
Find out what forms of relief are applicable to you, and you’ll be surprised at how much you can actually save.
Contribute to SRS (Supplementary Retirement Scheme)
The Supplementary Retirement Scheme is a voluntary government-managed program that allows individuals to save for retirement over and above your compulsory CPF. Under the SRS, you may contribute various amounts up to a certain cap. For Singaporeans and Singapore permanent residents, the maximum contribution allowed is $15300 – YA 2017 per annum, while the cap is $35700 – YA 2017 for foreign Singapore work visa holders.
While the SRS does not give a fixed 2.5% interest rate like the CPF, it provides attractive tax benefits. In particular, each dollar contributed to SRS can be deducted from your chargeable income. This means that your actual SRS contribution is the amount of tax relief that you can claim.
Make a Voluntary Contribution to Your Medisave Account
You are eligible for tax reliefs when you make a voluntary contribution to your Medisave Account on top of the compulsory CPF savings. You may claim a relief for any income earned in the year in which your voluntary MediSave contributions were made.
The amount of relief allowed for voluntary Medisave contributions is limited to the lowest of either of the following: (1) Voluntary cash contributions made specifically to the Medisave Account; (2) Annual CPF cap less the mandatory contribution by you and your employer; or (3) Prevailing Medisave Contribution Ceiling of $48500 ($49800 – YA 2017) less the balance in Medisave Account prior to your voluntary contribution.
Through this method, you can trim down the amount of taxes you have to pay while simultaneously saving up for your healthcare needs.
Read More Singapore Healthcare System
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.
Furthermore, you can claim additional relief if you top-up your family members’ retirement account or special account, 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 spouse, sibling, parents or grandparents, you can claim additional relief equal to the amount of cash top-up, capped at S$7,000.
The maximum CPF top-up relief you can make per year is S$14,000.
Read More Singapore Personal Income Tax
Make a Charitable Donation
Spread some goodwill by making a charitable donation, and get some tax benefits in the process. This is a great opportunity to contribute to a cause you believe in while enjoying a substantial reduction in your tax obligations.
In Singapore, donations made to any approved Institution of Public Character (IPC) or Qualifying Grant-making Philanthropic Organization are tax-deductible.
Normally, you can 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.
However, in view of the pervading economic uncertainty, the government has increased tax deductions for donations to encourage more generosity. As such, donations made from 2009 to 2018 that qualify under the double tax deduction criteria will temporarily qualify for 2.5 times tax deduction. This means that any amount you contribute within the qualifying period will entitle you to a tax deduction of 2.5 times the amount of your donation.
Apply for the Not Ordinarily Resident (NOR) Scheme
If you qualify under the Not Ordinarily Resident (NOR) scheme, you will benefit from favourable tax treatment for a period of 5 years of assessment (YA).
In order to claim tax benefits under the NOR program, 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.
If granted NOR status, you are eligible for attractive concessions, such as time apportionment of your employment income and favourable tax treatment of contributions to overseas pension funds.
Read More Singapore Personal Tax for Non-Residents
File for Deductible Expenses from Rental Property
In Singapore, rental income, or income from rental property, is taxable. However, to offset your rental income tax, you can claim rental expenses under applicable conditions.
There are various types of deductible expenses that can be applied. Some examples are: property tax, mortgage interest, fire insurance, maintenance fees to the managing body, or general repairs and maintenance costs. As a general rule, rental expenses are deductible if they are incurred: (1) solely for the purpose of generating rental income; and (2) during the period of tenancy.
Read More IRAS Guide on Rental Income
The above are general tips for reducing your Singapore income tax burden. If your tax situation is unique, or if your needs are more specific, consider consulting a Singapore tax specialist such as Rikvin. We look forward to hearing from you.