It’s that time of the year again! Tax season.
If you are a Singapore tax resident, you will receive your Notice of Tax Assessment (NOA) between April and September of this year. This usually serves as a wake-up call for most people and it’s a perfect time to relook your tax planning and tax strategy. Below we’ll look at what you can do to reduce your personal tax bill.
You will see that we’ve classified it the same way your Notice of Tax Assessment should have appeared- Section A: Income (less expenses), Section B: Deductions and Personal Relief and Section C: Rebates—so you can use it as a reference as you look through your statement.
Who has to pay taxes in Singapore?
Generally, you will have to pay taxes in Singapore if you’ve stayed or worked here for more than 183 days in any given year.
What do I have to pay taxes on?
You will have to pay taxes on your income derived from any of the following sources: employment (salary, bonuses, overtime pay) , trade, profession, business, vocation, property (rental income), investments, and other sources such as estate-related, trust income, annuities, royalties.
How can I reduce my personal tax bill?
You can reduce your personal tax bill by leveraging IRAS’ reliefs and rebates and claiming tax deductions, including the ones offered to maximize your retirement savings (CPF and SRS).
Deductions and Personal Reliefs
Tax reliefs are available to Singapore Tax Residents who meet the qualifying criteria.
There are general reliefs—reliefs that are available to everyone—such as the earned income relief, course fee relief, life insurance relief, parent/handicapped parent relief, handicapped brother/sister relief and the National Service relief.
There are also what are considered additional reliefs—reliefs that are available only to married, divorced and widowed taxpayers. These include among others the foreign maid levy, grandparent caregiver relief, working mother’s child relief.
The Singapore’s IRAS also offers a few tax deductions, focused on donations, rental property expenses and angel investing.
You can claim deductions on your taxable income when you make donations up to 2.5 times the amount donated. Expenses relating to rental income are also tax deductible, helping real estate investors maximize their returns.
A lesser-known option is probably that you can also claim taxable deductions when you invest under the Angel Investors Tax Deduction Scheme (AITD). To qualify under this scheme, you will need to invest an amount of at least SGD 100,000 in a qualifying start-up company within 12 months of your first investment with the company, between the 1st of March 2010 and 31st of March 2020. You would also need to hold this investment for a period of at least 2 years from the date of your last qualifying investment.
CPF Cash Top-up Relief
To encourage Singaporeans and Permanent Residents to save for their retirement, you can claim tax relief when you top-up your own or your family member’s CPF Special account for retirement needs. The relief is only for cash top-ups and no relief is awarded if the top-up is done by a transfer of funds from your individual CPF Account to your own or a family member's Special/Retirement Account.
The maximum relief per year of tax assessment is SGD 7,000 for yourself and SGD 7,000 for family members. If you top up any amount less than SGD 7,000, your tax relief is the exact cash amount you topped up.
For example, if I topped up SGD 5,000 to my CPF, my tax relief for that year will be SGD 5,000. If I topped up SGD 10,000 for myself and SGD 5,000 for a family member, my tax relief is SGD 12,000 (SGD 7,000 tax relief for my individual cash contribution, due to the cap, and SGD 5,000 tax relief for my contribution to my family member’s CPF).
There are, however, a few limitations for this option. For example, if you’d like to claim a cash top-up to your spouse or sibling’s CPF Special account, you can only do so if their annual income in the year preceding the year of top-up does not exceed SGD 4,000. For more information, you can refer to this.
Supplementary Retirement Scheme (SRS) Account
Now this is something we’ve become quite an expert on at StashAway because we launched our SRS offering in December of last year.
The SRS program was initiated by Singapore’s Ministry of Finance to encourage both Singaporeans and foreigners to save more for retirement by offering attractive tax incentives to those who choose to invest with their SRS account. Unlike CPF, SRS is entirely voluntary and an SRS account holder can choose to invest their SRS funds in an extensive list of approved options, while the majority of CPF investments are managed by the CPF Board.
Singaporeans and Permanent Residents can contribute to their SRS bank accounts (with one of the 3 local banks- UOB, DBS and OCBC) up to SGD 15,300 SGD per year, and foreigners can contribute up SGD 35,700 SGD per year.
The main benefit of SRS is the tax incentives as your contributions can be fully deducted from your tax bill. Singaporeans can reduce their taxes by up to $3,366 SGD each year and the higher your marginal tax bracket, the larger the tax savings. You can only make withdrawals at retirement (or when conditions are met) and the funds are given a 50% tax concession, which can be spread out over a 10 year period to minimize taxes.
Foreigners can contribute up to a maximum of SGD 35,700. and they can save a maximum of $7,854 SGD per annum. Assuming you max out your tax savings every year, it will mean a total tax savings of approximately SGD 80,000 over 10 years.
A few caveats are that you will not be able to withdraw your funds from your SRS account until you reach retirement age i.e 62 for Singaporeans. If you withdraw before that time, you will have to pay a 5% penalty on the amount withdrawn and you will have to pay taxes on 100% of the withdrawal i.e you will get zero tax relief. Once you withdraw from your SRS account, you are also prohibited from contributing again to it.
Another limitation is that the interest you earn on your SRS account is very low at only 0.05%. However, this is only a limitation if you simply keep your funds in your SRS account. What that means is that if you open an SRS account, just make sure that you are investing those funds! Otherwise, you will be better served keeping it in cash or in a savings account to avoid tying it up until retirement (or for 10 years if you’re a foreigner).
I’ve written extensively on this topic so if you are interested to learn more on whether you should have an SRS account, the tax benefits of SRS and the ways to make the most of your account, you can visit our resource centre.
Your tax rebate is calculated after double taxation relief (to relieve double taxation of income between two jurisdictions), Parenthood Tax Rebate, where married, divorced or widowed parents can claim rebates of up to $20,000 per child, and other credits.
For the year of assessment 2019, as part of the Bicentennial Bonus, all individual tax residents will receive a 50% income tax rebate (up to a cap of SGD 200) on the amount of tax payable.
The rebate is computed and granted automatically by IRAS and no action or application is required on your part.
The Final Line Item: Income Tax Payable
As you can see, there are many ways to lower your tax bill and achieve tax savings. However, not every option can or will work for everyone and you should select the one(s) that fits your current situation.
Finally, when you receive your NOA, make sure you check the line items and the final amount payable carefully. If you believe there has been an error or any discrepancies, you can lodge an objection with IRAS within 30 days of when your NOA was dated.
EXCLUSIVE FOR ESQUIRE SINGAPORE READERS
If you’d like to start investing with SRS, you can do so with StashAway, that has no minimum deposit, no withdrawal restrictions, so you can try it with no lock-up. Sign up at StashAway's website to enjoy a special promotion which entitles you to 50% off fees for the first SGD 50,000 invested for 6 months.