Basic Tips for Tax Residents of Singapore
Whatever the assessment year (YA), we should start considering our personal tax strategy early on. 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.
In Singapore, financial management can be an important survival tool, and proper tax planning is an integral component of this for better cash flow positioning.
Should tax planning be exclusive to high net worth individuals (HNWIs) with large assets only? Whenever you need 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 substantial long-term savings.
Here are some basic tips to reduce your tax burden. Note, however, that these are all general in nature. If you have more specific questions and/or concerns, please schedule a consultation.
Claim applicable tax relief and rebates
Singapore personal tax rates are progressive, starting at 0% and ending at 22% (YA 2018) for annual income above S$320,000. There are a series of deductions and concessions that will allow you to save on your personal taxes.
Tax relief against your taxable income is awarded in recognition of your contributions to areas that align with government policies. For example, certain grants are available to support parenting and family building, caring for elderly parents, upgrading professional skills, national service, etc.
Some of the relief you can claim include spousal relief, child relief, parental relief, earned income relief, and foreign maid tax relief, among others. They are all subject to certain conditions.
Top up your CPF (Central Provident Fund)
The CPF minimum sum top-up scheme allows you to claim tax relief when you top up your CPF savings. You can also claim the deduction if the top-up is done by your employer.
This extends to whether you top up your family members’ retirement account or special account for extra relief, as long as their annual income did 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 tax relief equal to the amount of the top-up. For cash top-ups of S$7,000 or more, your tax relief is capped at S$7,000.
For top-ups you make to the CPF of your sibling, spouse, parents or grandparents, you can claim additional relief equal to the amount of the top-up in cash, capped at S$7,000.
The CPF recharge relief you can do per year is S$14,000 (Maximum).
Contribute to the SRS (Complementary Retirement Regime)
The Complementary Retirement Regime (SRS) is a voluntary regime to encourage people to save for retirement, in addition to their CPF savings. SRS contributions are eligible for tax relief which will be deducted again from your taxable income. Investment returns are tax-free before withdrawal and only 50% of SRS withdrawals are taxable at retirement. For Singaporeans and permanent residents of Singapore, the maximum allowable contribution is $15,300 – YA 2018 per year, while the cap is $35,700 – YA 2018 for Singapore work visa holders.
Voluntary Contribution to your Medisave Account
Claim relief for any income earned in the year in which your voluntary contributions to MediSave were made. This method helps you reduce the amount of taxes you have to pay while saving for your health care needs.
The amount of relief allowed for Medisave voluntary contributions is limited to the lesser of any of: (1) voluntary contributions made specifically to the Medisave account; (2) CPF annual limit minus the mandatory contribution from you and your employer; or (3) the prevailing Medisave maximum contribution limit of $48,500 ($49,800 – YA 2018) less the balance in the Medisave account before your voluntary contribution.
Make a charitable donation
In Singapore, donations made to any approved Public Institutions (CPIs) or Philanthropic Organizations that make qualifying grants are tax deductible.
Generally, you’ll claim a double tax deduction (ie, double the donation amount) for donations that fall into any of the following categories: (1) cash donations; (2) stock donations; (3) computer donations; (4) artifact donations; (5) tax incentive plan for public art; and (6) donations of land and buildings.
The government, depending on the economic situation and social benefits, will encourage or discourage certain activities to meet the national benefits as a whole. By making a charitable donation you not only do a good deed, you also enjoy a substantial reduction in your tax obligations. For example, donations made between 2009 and 2018 that qualify under the double tax deduction criteria will temporarily qualify for a 2.5 times tax deduction
Apply for the Non-Ordinary Resident Scheme (NOR)
Enjoy a 5-year period of evaluation tax benefits (YA) if you are qualified under the Ordinary Non-Resident (NOR) scheme.
You must meet the following two criteria: (1) You were not in Singapore for 3 YA 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.
Rental expenses can be deducted from rental income
Rental income is taxable, so associated expenses are deductible.
Examples of such deductible expenses are: property tax, mortgage interest, fire insurance, maintenance fees to the administrative body or general repairs and maintenance costs. Check the following: Rental expenses are deductible if they are incurred: (1) solely for the purpose of generating rental income; and (2) during the lease period.
The above are general tips to reduce the income tax burden in Singapore. It’s always best to plan before the base period ends. If your tax situation is unique or your needs are more specific, consider consulting a Singapore tax specialist.