No matter the market conditions, tax is an inevitable part of business. However there is always a smarter way of doing things, so we’ve compiled 8 of the best ways you can benefit from Singapore income tax relief in 2020.
The end of the 2020 tax year may seem some distance away, but we always recommend to look ahead and plan so you can reduce your tax burden as much as possible.
First though, let’s go over the basics of tax calculations in Singapore, so we start off on the right (and legal) foot.
How Is Income Taxed in Singapore?
There are basic forms of income, assessable income, and chargeable income. Both are often conflated with each other, so it’s important to make the distinction between the two.
What is Assessable Income in Singapore?
Assessable income simply refers to your total income for the year, minus expenses and donations. To get your starting number, include everything from a salary, part time job, to income from rental properties.
After that, subtract all of your expenses, whether they be business related, employment related, or donations.
The sum is your total assessable income.
Please note, thanks to Singapore’s generous lack of red tape, income like lottery winnings and capital gains are not taxable. Here is a quick (but not comprehensive) list of what is considered taxable and non-taxable income in Singapore.
|Taxable Income in Singapore||Non-Taxable Income in Singapore|
|Salary From Employment||Lottery Winnings (e.g. 4D, Toto)|
|Bonuses||Earnings from Overseas|
|Rental Income*||Alimony and Maintenance Payments|
|Part-Time Work/Freelance/Contracting Work||Capital Gains (e.g. profits from stocks, property sales)|
|Royalties*||Government Pensions, CPF Life Income For The Elderly Payouts|
|Withdrawal From Supplementary Retirement Scheme|
*Rental & Royalties income are taxable only if it is derived in Singapore. Foreign rental and royalties are not taxable when received in Singapore.
What is Chargeable Income in Singapore?
Chargeable income in Singapore is your assessable income minus any personal reliefs available to you by the Government. These reliefs can range from everything for Earned Income Relief, to relief if you have a handicapped sibling. You can see a full list of different types of relief on the IRAS tax deductions page.
Individual income tax is not a flat rate, but rather a progressive system, where you pay a graduated amount depending on how much income you get. For a Singapore resident, that progressive system looks like this:
|Chargeable Income||Income Tax Rate (%)||Gross Tax Payable ($)|
In excess of $320,000
Once you do your calculations based on this table, like most people, you’ll think that sounds like a lot of tax to pay. Thankfully, there are ways to help reduce your tax burden. Let’s have a look at 8 ways to do just that.
Related Read: Personal Income Tax Guide for Foreigners in Singapore
1. Get Educated and Get Tax Relief
The Singapore Government are big fans of having an educated population, so IRAS have provided a rather generous tax relief scheme for those willing to better themselves.
If you undertake anything from a professional course, right through to a Master’s programme, you can claim up to $5,500 in tax relief per year.
Not a bad way to improve yourself and save money on tax at the same time.
2. Have a Family
In this modern day and age, some people see raising a family as a financial burden, so the Singapore Government would like to encourage a happy, healthy, and growing population with tax relief.
First and foremost, you will receive a Baby Bonus, but you will also get further tax relief depending on your situation.
|Family Tax Relief Scheme||For||Amount Per Year|
|Qualifying Child Relief||Both parents||$4,000 per child ($7,500 if the child is handicapped)|
|Working Mother’s Child Relief||Working mothers||15% for first child, 20% for second child, 25% for third or more|
|Grandparent Caregiver Relief||Working mothers||$3,000|
|Foreign Maid Levy Relief||Mothers||2x of maid levy paid (max. 1 maid only)|
3. Donate to a Tax-Deductible Registered Charity
We’ve seen a genuine increase in donations to registered charities, and for good reason — it offers both altruism and tax relief.
Any cash donation made to an approved registered charity would allow that donor to receive tax relief of 250% on that donation. Done properly, you may be able to make a donation, deduct the donation straight away, and give the actual funds to the charity later, while you earn interest on those funds.
There are some caveats however. You will need to make sure the donation is an approved Institution of a Public Character (IPC) or part of the Singapore Government. You can see a full list of IPCs on the Singapore Charity Portal. You also need to ensure that you do not receive any material benefits from your donation, including advertising as exposure.
4. Invest in Your Supplementary Retirement Scheme
The Supplementary Retirement Scheme (SRS) was set up in Singapore in 2001 to help prepare the aging population for their retirement with a nest egg. Investment opportunities were limited at first, however in recent years they have opened up to include more hands off investments like Robo-Advisors.
Singapore Citizens can expect dollar for dollar tax relief with a cap of $15,300 for citizens and permanent residents, and $35,700 for foreigners. We should note that this is only applicable if personal income tax relief is not over $80,000 for the year.
Once the individual reaches the age of 62, they are able to withdraw from their SRS fund with a 50% tax concession on those withdrawals.
5. Make Voluntary CPF Special Account Payments
This tax saving tactic is actually very prudent and forward thinking, as it will help ensure your financial future into your retirement.
By making voluntary payments to your CPF special account (as well as the account of your significant other), you not only add to your retirement nest egg, but have CPF match you dollar for dollar in tax relief for your income tax.
Each account is limited to $7,000 in extra payments per year, but this adds up in a household to $14,000 in tax relief per couple per year. What’s more, that reduction in chargeable income may in fact put you in a lower tax bracket in the table above, saving you even more money in tax.
Finally, you’re earning a decent 4% annual return on that investment, so it all comes together to become a very sensible idea indeed.
6. Make Voluntary Medisave Payments
A lesser known mechanism for cutting down an individual tax bill in Singapore is to top up your Medisave account with voluntary payments.
Assuming you have not yet reached your Basic Healthcare Sum ($57,200 at age 65), any voluntary payment would generally reduce your chargeable income down by that amount.
Again, you get that 4% return, just like your CPF special account, but it is far more flexible as you can access your Medisave account for medical purposes, providing peace of mind for your health.
7. Make Deductions on Rental Property
If you are fortunate enough to have a rental property (or several), you can claim tax relief on the expense required to rent them out to tenants. This can cover everything from insurance, to the interest on your mortgage. It can even cover repairs and maintenance, so it offers a good incentive to make a priority of otherwise unwanted expenses.
8. Move in With Your Parents
Obviously this won’t be for everyone, and that’s why we’ve left this idea for last. However if you do come into the situation where you need to move in with your parents or grandparents, there is tax relief available under the Parent Relief scheme. Amounts vary, depending on your individual situation.
|Tax Relief Scheme||Amount per year, per dependant (max. 2)|
|Parent Relief (stay together)||$9,000|
|Parent Relief (stay apart)||$5,500|
|Handicapped Parent Relief (stay together)||$14,000|
|Handicapped Parent Relief (stay apart)||$10,000|
Moving Forward With Lowering Your Income Tax Bill
We’ve listed 8 ways to lower your income tax income bill in Singapore, and we certainly hope we’ve armed you with the information to do a lot of this yourself.
However if you find you don’t quite have the tools or time to do this yourself, we have a team of income tax experts who are more than happy to help you navigate your tax needs. Tax needn’t be the burden people say it should be, and we’re here to demystify the system for your benefit.
If you have any questions about how to find a trustworthy partner to help lower your income tax bill in Singapore, please do contact us — it’s both our job and pleasure to assist.
FAQs on Singapore Income Tax Relief
- Some of the ways that you can reduce your taxes are by making voluntary CPF contributions, donating to IPC registered charities, taking up skilled courses and even living with your parents.
- Yes. You can claim tax relief on the expense required to rent them out to tenants. This can cover everything from insurance, to the interest on your mortgage. It can even cover repairs and maintenance.
- Chargeable income in Singapore is your assessable income minus any personal reliefs available to you by the Government.
- Yes. Foreigners are required to pay tax on all earned income in Singapore and will not be entitled to any tax reliefs.
Let Us Help You Reduce Your Income Tax in 2020
Rikvin’s team of experts can assist in helping you reduce your tax bills in Singapore.
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.