9 Simple Ways To Reduce Your Income Taxes
How do you survive in “The Most Expensive City In The World”? Well, here’s one simple way, reduce your taxes! Here are 9 ways to help you save on your income taxes.
1. Claim All Appropriate Tax Relief
First, any type of tax reliefs that apply to you, just go ahead and claim it!
Here are 12 types of tax reliefs you can claim from.
(i) Earned Income Relief
The purpose of this relief is to provide recognition for individuals who receive income from work.
Income tax relief of between $1,000 and $8,000 is available if you have taxable income from employment, a pension, or a trade, business or profession.
The maximum amount of relief is as follows:
For those with permanent physical and mental disabilities, the maximum amount claimable is as follows:
(ii) Spouse relief/Handicapped Spouse Relief
To recognize taxpayers who have supported their spouses, anyone whose spouse does not have an annual income exceeding $4,000 can claim spouse relief limited to a maximum of $2,000.
If the spouse is handicapped, the exemption limit is $5,500.
(iii) Qualifying/Handicapped Child Relief (QCR/HCR)
A parent who has an unmarried child below age 16, can claim a Qualifying Child Relief (QCR) of up to $4,000 per child.
If the child is handicapped, the exemption limit increases to $7,500.
(iv) Working Mother’s Child Relief (WMCR)
This scheme is created to encourage parents to take up Singapore citizenship for their children, and encourage women to continue working after having children.
(v) Parent/Handicapped Parent Relief
Created to promote filial piety, a Singaporean who supports his parents, grandparents, parents-in-law or grandparents-in-law can apply for parent relief.
To receive benefit under this scheme, the dependant must meet the following criteria:
- at least 55 years of age, or physically/mentally disabled
- must not have an annual income exceeding $4,000
Amount of Parent Relief:
Amount of Handicapped Parent Relief:
(vi) Grandparent Caregiver Relief
Grandparent Caregiver Relief (GCR) is a relief given to working mothers who engage the help of their parents, grandparents, parents-in-law or grandparents-in-laws to take care of their children.
This is to provide recognition to grandparents who may have played a role in taking care of their grandchildren.
The child has to be a Singapore citizen, and age 12 and below. You can claim up to $3,000 on one of your parents, grandparents, parents-in-law or grandparents-in-law.
(vii) Handicapped Brother/Sister relief
If you support a sibling or sibling-in-law with a disability, you are eligible for this relief. The maximum exemption allowed is $5,500 for each sibling or sibling-in-law.
(viii) Life Insurance Relief
To claim for this relief, you need to satisfy all of the following conditions:
- You have made a total compulsory employee CPF contribution or self-employed Medisave/Voluntary CPF contribution, or both, of less than $5,000.
- You paid insurance premiums on your own life insurance policies or on insurance you bought on your wife’s life;
- Insurance company must have an office or branch in Singapore if your policies are taken on or after 10 Aug 1973
If your CPF contribution is less than $5,000, you may claim a lower of:
- The difference between $5,000 and the CPF contribution; or
- Up to 7% of the insured value of your own or your wife’s life or the insurance premiums paid, whichever is lower
(ix) Course Fee Relief
Have you recently taken up a course which led to an approved professional qualification and that is relevant to your current profession? If so, you may be eligible for this tax relief!
This scheme is offered to encourage individuals to upgrade their skills and improve their job opportunities.
Regardless of the number of courses attended, a maximum claim amount of $5,500 is possible under this scheme.
If the assessable income is less than or equal to $22,000, you can make a claim within 2 years from the date of taking the course.
Take note that the course/seminar you attended is a Singapore Registered Entity with the Accounting & Corporate Regulatory Authority (ACRA).
To find out if your course is registered with ACRA, you can use this online tool on ACRA website.
(x) Foreign Maid Levy Relief
This is another scheme established to encourage women to stay in the workforce.
According to this scheme, a woman with school-attending children can claim relief for any salary paid to a foreign domestic worker.
You can claim up to twice the salary paid in the previous year to the maid as tax relief.
(xi) NSman (Self/Wife/Parent) Relief
This scheme recognizes the contributions of individuals to the National Service (NS).
Any operationally ready NSman is eligible for this tax relief.
NSman wife and NSman Parent Reliefs are also given to the wives and parents of NSmen.
NSman wife relief is $750, NSman Parent Relief for each parent is $750.
(xii) Parenthood Tax Rebate (PTR)
This scheme was established to encourage Singapore tax residents to have more children.
To qualify, you must be a Singapore tax resident who is married, divorced or widowed in the relevant year.
Amount of Tax Rebate:
2. Claim Business Expenses
If you are a sole proprietor, self-employed individual or a partner in a partnership, you can claim tax deductions on business expenses to reduce income from your business and eventually lower your taxable income.
Deductions for self-employed individuals and partners include:
- Business Expenses
- Productivity and Innovation Credit (PIC)
- Capital Expenditure incurred on Renovation or Refurbishment works (S14Q – R&R cost)
- Capital Allowances (CA) on fixed assets
- Medical expenses
- R&D Expenditure
- Land Intensification Allowance
- Expenses incurred before commencement of business
- Business making losses and unabsorbed capital allowances
Each of these deductions has its own set of criteria to be met before they can be claimed.
3. Apply for Not Ordinarily Resident(NOR) Scheme
To claim tax reliefs under this scheme, you must meet both of the following criteria:
- You must be a non-resident for the past 3 years of assessment (YA); and
- In that YA in which you first qualify for the NOR Status you must be a Singapore tax resident.
If you qualify under the Not Ordinarily Resident (NOR) scheme, you will have favourable tax treatment for a period of 5 years.
If you are granted the NOR status, you will enjoy the following 2 main tax benefits. Time apportionment of employment income and tax exemption of employer’s contribution to overseas pension funds.
4. Donate to Approved Institutions
If you want to make a deposit into your Good Karma Account and get instant good karma back, you will love this scheme.
Cash Donations made to an approved Institution of Public Character (IPC) is tax deductible. You can search if an organisation is an approved IPC here.
Donations in the form of:
- Land & Buildings
- Sculptures/Works of Art to National Heritage Board
can be used to claim tax exemptions of 250%!
For example, if you donate $1,000 in cash, you will receive a tax relief of $2,500 (250% x $1,000)!
Talk about Instant Good Karma!
5. Claim Property Rental Expenses
If you have rental income from renting out your property, some expenses incurred solely for the purpose of producing rental income are considered as tax deductible
These are the types of expenses you can claim from:
- Interest Paid on Housing Loan
- Property tax
- Premiums Paid on Fire Insurance
- Repair Costs During Rental Period
- Cost of Maintenance
- Costs of Securing a Tenant
- Costs of Supervision or Management Fees
- Furniture & Fittings
- Internet Charges
- Utility Expenses
6. Voluntarily Contribute to Your Own CPF Medisave Account(MA)
The lack of Medisave funds can result in serious consequences for you and your loved ones as you may have trouble paying your medical bills especially if you don’t have adequate hospital insurance coverage.
Thus, the government thought of a great way to encourage you to top up your Medisave Account, which is to reduce your taxes when you do so.
The amount of tax relief will be given to the lowest of the following:
- Voluntary cash contribution into Medisave Account or
- Annual CPF contribution cap for the year less Mandatory Contribution or
- Basic Healthcare Sum less the balance in your Medisave Account before the voluntary cash contribution
7. Top Up Your Own CPF Special Account(SA)
Topping up your own Special Account is one of the best ways to reduce your taxes while building up your retirement funds at the same time!
This simple strategy will give you the benefit of risk-free compound interest, which currently stands at 4% per annum.
Furthermore, this strategy will give you a “dollar-for-dollar” tax relief of up to $7,000 a year.
For example, if you decide to top-up $5,000 into your SA, you will get $5,000 in tax reliefs!
The maximum CPF Cash Top-Up Relief a year is $7,000 for yourself.
8. Top Up Your Parents’ CPF Special/Retirement Account (SA & RA)
This scheme also allows you to top up your family members’ Special or Retirement Accounts.
Topping up your parents’ CPF Accounts will significantly boost their CPF funds and payouts due to the 4% compounding interest. This reduces the weight on your shoulders if you were to give the same amount of money to them in the future.
For example, topping up $1,000 into their Retirement Account which grows at 4% a year for 10 years will become $1,480. That’s $480 more compared to if you were to give $1,000 to them 10 years later!
Furthermore, you can receive up to $7,000 worth of tax reliefs a year, the same as topping up your own Special Account.
You can claim a total of up to $14,000, ($7,000 for topping up your own account and $7,000 for your family members’ accounts.)
Some important things to note:
- You are only allowed to top up your family members’ accounts up till the Full Retirement Sum.
- This tax relief only applies for top-ups made in cash. It does not apply when the top up is made by transferring funds from your own CPF Account to your own or a family member’s Special/Retirement Account.
9. Contribute to your Supplementary Retirement Scheme (SRS)
The SRS is an initiative by the Singapore government to complement the CPF and address our retirement needs.
Like CPF top ups, contributions to SRS are eligible for a “dollar-for-dollar” tax relief, which means the amount of relief you get depends on how much you contribute to your SRS.
It is subjected to a maximum amount of $15,300 for Singapore Citizens and Permanent Residents and $35,700 for Foreigners.
You can open your SRS account with any of these 3 SRS operators:
and you don’t have to worry about the hassle of claiming your tax reliefs separately as the information will be provided by your SRS operator.
Note that although you can withdraw your funds in your SRS account any time in the form of cash or investments, withdrawals before the statutory retirement age of 62 years old will have negative implications.
If you withdraw before the statutory retirement age, 100% of the amount in your SRS will be taxed and a 5% penalty will be imposed.
For example, if you have $50,000 in your SRS account, the full $50,000 will be taxed and a penalty of $2,500 (5% of $50,000) will be imposed.
If you withdraw after the statutory retirement age, 50% of the amount in your SRS will be taxed and there will be no penalties.
For example, if you have $50,000 in your SRS account, only $25,000 will be taxed.
Paying taxes is unavoidable, but we can capitalize on the benefits the Singapore Government has given us using these tax reliefs, rebates and platforms for us to reduce our taxes!
For more information on income tax, visit IRAS’s website here.