Basic tips for Singapore tax residents
Whatever Year of Assessment (YA) it is, we should start considering our personal tax strategy early. In Singapore, one of the most expensive cities in the world, financial management can be an important tool for survival, and proper tax planning is an integral part of this.
Should tax planning be exclusively for high net worth individuals (HNWIs) with vast assets? As long as you are required to file a tax return, you need to do tax planning. It’s worth noting that your personal tax obligations affect your disposable income and proper tax planning can translate into significant savings in the long run.
Here are some basic tips to reduce your tax burden. However, please note that they are all general in nature. If you have more specific questions and/or concerns, please schedule a consultation with us.
Claim the relevant tax credits and rebates
Personal tax rates in Singapore are progressive, starting at 0% and ending at 22% (YA 2018) for annual incomes above S$320,000. There are a number of reliefs and allowances that allow you to save on your personal taxes.
Tax credits against your assessable income are given in recognition of your contributions to areas that are in line with government policy. For example, certain allowances are available to support parenthood and family formation, care for elderly parents, upskilling, national service, etc.
Some of the reliefs you can claim include, but are not limited to, Spouse Relief, Child Relief, Parental Relief, Earned Income Relief and Foreign Maid Relief. All are subject to certain conditions.
Top up your CPF (Central Provident Fund)
The CPF Minimum Top Up Scheme allows you to claim tax relief when you top up your CPF savings. You can also claim relief if your employer does the topping up.
This also applies when you top up your family members’ retirement account or special account for additional relief, provided their annual income does not exceed S$4,000 in the previous year.
For cash top-ups under S$7,000 made by you or your employer, you are entitled to a tax credit equal to the top-up amount. For cash top-ups of S$7,000 or more, your tax credit is limited to S$7,000.
For top-ups you make to your sibling’s, spouse’s, parents’ or grandparents’ CPF, you can claim additional relief equal to the cash top-up amount, which is capped at S$7,000.
The CPF top-up allowance you can make annually is S$14,000 (maximum).
Contribute to the SRS (Supplementary Pension System)
The Supplementary Retirement Scheme (SRS) is a voluntary scheme that encourages individuals to save for retirement beyond their CPF savings. Contributions to the SRS are eligible for tax relief, which will again be deducted from your taxable income. Investment returns are tax-free before withdrawal, and only 50% of SRS withdrawals are taxable at retirement. For Singaporeans and Singapore Permanent Residents, the maximum allowable contribution is $15,300 – YA 2018 per year, while the ceiling is $35,700 – YA 2018 for foreign Singapore work visa holders.
Voluntary contribution to your Medisave account
Claim relief on any income earned in the year your voluntary MediSave contributions were made. This method will help you reduce the amount of taxes you have to pay while saving for your health care needs.
The amount of relief allowed for voluntary Medisave contributions is limited to the lowest of the following: (1) Voluntary contributions specifically to a Medisave account; (2) Annual CPF limit minus the mandatory contribution by you and your employer; or (3) The prevailing Medisave contribution cap of $48,500 ($49,800 – YA 2018) less your Medisave account balance before your voluntary contribution.
Make a charitable donation
In Singapore, donations to any approved Institution of Public Character (IPC) or Eligible grant-making philanthropic organization are tax deductible.
In general, you will claim a double tax deduction (ie, double the amount of the gift) for gifts that fall into any of the following categories: (1) monetary gifts; (2) share gifts; (3) computer gifts; (4) donations of artifacts; 5) a public system of tax incentives for art; and (6) gifts of land and buildings.
The government will promote or discourage certain activities according to the economic situation and social benefits to fulfill the national benefits as a whole. By donating to charity, you not only do a good deed, but you also significantly reduce your tax liability. For example, donations made between 2009 and 2018 that meet the double tax deduction criteria will be temporarily entitled to 2.5 times the tax deduction.
Apply for the Not Ordinarily Resident (NOR) program.
Enjoy a period of 5 years of tax benefits (YA) if you qualify under the Not Ordinary Resident (NOR) scheme.
You must meet both of the following criteria: (1) you have not been 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 regime.
Rental expenses can be deducted from rental income
Rental income is taxable, so related expenses are deductible.
Examples of such allowable costs are: property tax, mortgage interest, fire insurance, maintenance fees to the governing body or general repair and maintenance costs. Check the following: rental expenses are deductible if incurred: (1) solely for the purpose of generating rental income; and (2) during the term of the lease.
The above are general tips to reduce your tax burden in Singapore. It is always better to plan before the end of the basic period. If your tax situation is unique or if your needs are more specific, consider consulting with a Singapore tax specialist.
JC has over 20 years of experience, including 14 years in senior management positions for small to some of the largest companies across Asia. He helps more than 30 companies from various industries and takes care of a number of CEOs and top managers. Transformation of digital business, first-class management and with multidisciplinary fields. With sets of unique business frameworks, JC helps clients grow their companies to where one of the startups is now valued at SGD 30 million.