For those who had a bountiful harvest in 2017 after many hours of sweat and tears spent in the office, you may have been hit with an equally large tax bill this year when the IRAS assessed your income for the year 2017. Taxes are inevitable, but did you know you can do certain things to help you reduce income tax in Singapore?
There are many months to go before 2018 comes to an end, but why not start getting prepared already? Before this year comes to an end, here are some things you could do to help reduce the amount of tax you will have to pay on this year’s income.
Taxes are inevitable, but these moves to reduce income tax will help make the inevitable less painful
1. Course fee relief
Have you been procrastinating on going for that course which can give you an academic, professional or vocational qualification? If the course is relevant to your current or new employment, now is the time to sign up for that course!
You will be able to claim a deduction of up to S$5,500 of course fee relief against your earned income in 2018 if the fees were paid in 2018.
Related: 5 Interesting Online Courses to Take
Have you always wanted to contribute to a charity to help the less fortunate? A tax relief of 2.5x the amount of donation will be available for contributions made to charities which are approved Institute of Public Character (IPC). The list of approved IPC can be found at the Charity Portal.
3. CPF Cash Top-up (self) Relief
Did you know that your CPF special account is one of the best ways to save for your retirement? With a guaranteed interest rate of 5%, it is one of the best savings plans you can find in the current low-interest rate environment.
To encourage Singaporeans to save more for their retirement, the government is giving you a tax relief of up to S$7,000, matching the cash top-up of your own special account! For Singaporeans 55 and above, the relief will also be provided when you top up your retirement account.
If you have not been saving much for your retirement, now is the time to deposit some cash into your CPF special/retirement account and reduce your tax bill for next year!
4. CPF Cash Top-up (parents, grandparents, spouse and/or siblings) Relief
In addition to topping up your own CPF special/retirement account, you could consider topping up the CPF retirement accounts of your parents and/or grandparents. The cash could go towards helping them with their retirement needs while earning you some tax relief on your own income.
If you have a spouse or siblings who do not have income exceeding S$4,000 in 2018, topping up their CPF special/retirement account will grant you the same relief. Similar to topping up your own CPF account, the maximum relief provided here is S$7,000.
If you have topped up both your own and your family member’s CPF special/retirement account, the maximum about of relief you will be entitled is S$14,000 (S$7,000 self + S$7,000 family).
5. Supplementary Retirement Scheme (SRS) relief
On the same topic of planning for your retirement, you may wish to consider opening an SRS account with one of the local banks. Contributions made to your SRS account will qualify you for a tax relief of up to S$15,300. The contribution should be made before the end of this year to qualify for the relief on your current year’s income.
Furthermore, as part of the SRS, only 50% of the withdrawal amount made at or after the official retirement age will be taxed (i.e. only S$50k will be subject to tax if S$100k was withdrawn). Withdrawals from the SRS account prior to retirement age will, however, be subject to tax in full.
6. Parenthood tax rebate/Qualifying child relief/Working mother’s child relief
It is common knowledge that the Singapore government is strongly encouraging Singaporeans to have children. If you have recently welcomed a newborn to your family this year, congratulations!
For new parents who are eligible for the above rebate and reliefs, please do remember to enter the particulars of your newborn when filing for your income tax next year. This will enable the IRAS to provide you with the necessary rebates and relief for this year.
Take note of your personal income tax relief cap of S$80,000
When planning to utilise all available reliefs for this year, please take note that there is a new S$80,000 personal income tax relief cap.
If your tax relief for 2018 exceeds S$80,000, the excess amount will not be available for you to reduce your taxable income earned in 2018. The excess will also not be carried forward to next year and will be disregarded.
Bear in mind that the cap is on tax relief; tax rebates (e.g. parenthood tax rebate) are not included in the cap. Some of us may mistakenly include tax rebate in the calculation, and not claim the full amount of tax relief we have available.
High-income earning women with 2 or more children should take note of this as the working mother’s child relief accorded to them are rather generous and may cause them to hit the tax relief cap even without considering other forms of tax relief.