Basic Tips for Singapore Tax Residents
The dawn of another calendar year means that tax season is just around the corner. Come March, 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 tax strategy for Year of Assessment (YA) 2020.
In Singapore, one of the most expensive cities globally, 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 essential tips in this article. Please note, however, that these are all general in nature. If you have more specific questions or concerns, please get in touch with 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 2020) for annual incomes exceeding S$320,000. On top of this, the government provides some reliefs and concessions that will allow you to save on your personal taxes.
Tax reliefs, or standard tax 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 and more. All are subject to certain conditions.
Find out what forms of relief apply to you, and you’ll be surprised at how much you can save.
Read More: Best Strategies to Save on Your Personal Tax »
Contribute to SRS (Supplementary Retirement Scheme)
The Supplementary Retirement Scheme (SRS) is a voluntary government-managed program that allows individuals to save for retirement over and above their compulsory CPF. Under the SRS, you may contribute various amounts up to a certain limit. The maximum contribution allowed is $15300 per annum for Singapore citizens and permanent residents, while the cap is $35700 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.
Read More: How to Reduce Personal Tax While Saving for the Future »
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 reliefs for any income earned in the year to which you contributed.
The amount of relief allowed for voluntary Medisave contributions is limited to the lowest of the following:
(1) Voluntary cash contributions explicitly made to the Medisave Account or
(2) Annual CPF cap less the mandatory contribution by you and your employer; or
(3) Prevailing Basic Healthcare Sum (BHS) of $54,500 less the balance in your Medisave Account before your voluntary contribution.
You can trim down the amount of taxes you have to pay while simultaneously saving up for your healthcare needs through this method.
Read More: Singapore Healthcare System »
Topping up Your loved ones’ and Your own CPF
The Central Provident Fund (CPF) Minimum Sum Topping-Up Scheme allows you to claim tax relief when you top-up your CPF savings. You can also claim relief if your employer makes the top-up. To qualify for the tax relief, you have to be a Singaporean Citizen/Permanent Resident.
| Cash top-ups made to | Other Requirements/Conditions |
|---|---|
Self (by you and/or your employer)
|
Nil
For contributions below $7,000, tax relief can be as much as the top-up amount. For contributions equal to or more than $7,000, tax relief is capped at $7,000. |
*Handicapped due to physical or mental infirmity |
Nil
Contributions of any amount can be claimed as tax relief, capped at $7,000. |
|
Spouse/sibling must not have an **annual income of more than $4,000 in the year preceding the year of top-up.
**Annual income includes:
|
Read More: Singapore Personal Income Tax »
Make a Difference in your Taxes through Donations
Spread some goodwill by making a charitable donation and getting some tax benefits in the process. Donating is an excellent 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.
Typically, you can claim a double tax deduction (i.e. twice the amount of donation) for donations that fall under any of the following categories:
- cash donations
- shares donations
- computer donations
- artefact donations
- public art tax incentive scheme
- land and building donations
However, given the pervading economic uncertainty, the government has increased tax deductions for donations to encourage more generosity. As such, contributions made from 1st Jan 2016 to 31st Dec 2021 that qualify under the double tax deduction criteria will temporarily be eligible 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 your donation amount.
Applying For The NOR Scheme and Benefit for Years
If you qualify under the Not Ordinarily Resident (NOR) scheme, you will benefit from favorable tax treatment for 5 years of assessment (YA). To claim tax benefits under the NOR program, you must meet both of the following criteria:
- You were not in Singapore for 3 years before the year you qualified for the NOR scheme
- You are a tax resident for the YA in which you wish to qualify for the NOR scheme
You are eligible for attractive concessions if granted NOR statuses, such as time apportionment of your employment income and favorable tax treatment of contributions to overseas pension funds.
Read More: Singapore Personal Tax for Non-Residents »
File for Deductible Expenses from Rental Property can Deduct your Taxes too
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.
Various types of deductible expenses can be applied. Take, for example, 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 to generate rental income
(2) during the period of tenancy
Read More: IRAS Guide on Rental Income »
It Pays to Know your Tax Reliefs
The above are general tips on how to reduce your Singapore income tax burden in different ways. Understanding the multiple avenues in which you can reduce your personal taxes can really save you a good sum of money. If your tax situation is unique or needs are more specific than usual, consider consulting a Singapore tax specialist Rikvin. We look forward to hearing from you.
Optimise your personal tax bills
Let us do the work for you. With Rikvin, filing of your taxes is done right and well before the deadline.
Benjamin has over 20 years of tax experience, spending more than 13 years working for the Big 4 accounting firms and being an in-house tax advisor. Benjamin has also worked with SMEs, multinational corporations, and publicly-listed companies from diverse industries, offering tax advisory and planning, corporate restructuring, M&A, business model optimization, tax ruling requests, tax incentives application, tax risk mitigation, and tax reporting services on complex projects.
