I know, I know. It’s not even the end of the year, and here I am, writing an article about income tax. I’m like the Grinch who stole Deepavali.
While there are quite a few months to go before the tax season (which is in March and April), now is actually the best time to start calculating how much you’re likely to pay next year — before you blow all your savings on your year-end holidays and Christmas parties.
Plus, since there are still a couple of months left in YA2021, here are 10 tips for reducing the amount of income tax you have to cough up next year.
How do you work out your taxable income?
You probably know that personal income tax applies to your salary. This applies whether employed or freelance, including bonuses, but excluding compulsory CPF contributions. If you’re a landlord, rental income is also counted as taxable.
In Singapore, most other forms of income are not taxable.
For example, if you get dividends from your shares, they’re not taxable no matter how juicy they are. There is also no capital gains tax to pay, even if you made a million bucks from Bitcoin / flipping properties / other investments.
If you have any other sources of income that you’re unsure about, you can refer to the IRAS page on what is and isn’t taxable in Singapore.
By now you should have some idea of how much your taxable income is for YA2021 (Year of Assessment 2021, i.e. 1 Jan to 31 Dec 2020).
You may then be eligible for tax reliefs, which will be subtracted from your taxable income. The resulting (smaller) number is your chargeable income, which is what IRAS uses to calculate how much tax you need to pay next year.
Got it? To recap, the formula is [taxable income] – [tax reliefs] = [chargeable income].
What are the Singapore income tax rates in 2020?
Here are the current income tax rates on your chargeable income. You can use this table to estimate how much you’d have to set aside next year:
|Chargeable income||Income tax||Calculation (income tax rate)|
|Up to $20,000||None||0%|
|$30,000||$200||2% on $10,000|
|$40,000||$550||2% on $10,000 + 3.5% on $10,000|
|$50,000||$1,250||2% on $10,000 + 3.5% on $10,000 + 7% on $10,000|
|$60,000||$1,950||2% on $10,000 + 3.5% on $10,000 + 7% on $20,000|
|$70,000||$2,650||2% on $10,000 + 3.5% on $10,000 + 7% on $30,000|
|$80,000||$3,350||2% on $10,000 + 3.5% on $10,000 + 7% on $40,000|
|$90,000||$4,500||2% on $10,000 + 3.5% on $10,000 + 7% on $40,000 + 11.5% on $10,000|
|$100,000||$5,650||2% on $10,000 + 3.5% on $10,000 + 7% on $40,000 + 11.5% on $20,000|
|$110,000||$6,800||2% on $10,000 + 3.5% on $10,000 + 7% on $40,000 + 11.5% on $30,000|
|$120,000||$7,950||2% on $10,000 + 3.5% on $10,000 + 7% on $40,000 + 11.5% on $40,000|
As you can see, your income tax rises quite sharply once your chargeable income rises above $40,000. So if you’re there, you might want to find out what tax reliefs you can get to lower your chargeable income.
10 ways to reduce your personal income tax in Singapore
|Tax reliefs||Cap / estimated amount|
|CPF Top Up (your + loved ones’ SA)||$7,000 + $7,000|
|CPF Top Up (your Medisave)||Depends on your Medisave balance|
|Put money in SRS account||$15,300 (SC / PR) or $35,700 (foreigners)|
|Be a working mum||Potentially 100% of income|
|Move in with parents / grandparents||$18,000|
|Claim (non-reimbursed) employee expenses||N/A|
|Claim expenses for your business||N/A|
|Claim rental expenses||15% of rental income + home loan interest|
|Donate money, shares or other items||250% of donation value|
|Income tax relief ceiling||$80,000|
Always keep in mind that income tax relief ceiling of $80,000, which is the maximum relief possible to obtain.
Before you go on that crazy CPF topping up spree, you should check what reliefs you are eligible for using the IRAS Personal Reliefs Eligibility Tool. Bear in mind that some of these are automatically calculated when you file your income tax.
Now, there are more schemes here than I care to count, so I’m going to try and simplify things by grouping them into 6 broad strategies:
- Saving for retirement
- Having kids
- Caring for your parents
- Upgrading your skills
- Claiming expenses
1. Saving for retirement: CPF Top Ups + Supplementary Retirement Scheme
The easiest and best known way to reduce your taxes is to top up all the retirement accounts. For every $1 that you put in these accounts in YA2021, you get $1 deducted from your chargeable income:
|Tax reliefs||Maximum amount|
|CPF Top Up (your SA)||$7,000, capped at current FRS|
|CPF Top Up (loved ones’ SA/RA)||$7,000, capped at current FRS|
|CPF Top Up (your Medisave)||Depends on your Medisave balance|
|Put money in SRS account||$15,300 (Singaporean) or $35,700 (foreigner)|
CPF Top Up: Perform a CPF top up for your Special Account and it will be deducted from your chargeable income, up to $7,000. You can reduce it by another $7,000 by topping up your parents or grandparents’ CPF SA/RA. This applies only up to the current Full Retirement Sum ($181,000 in 2020) — any more than that, you don’t get tax relief.
Medisave Top Up: As with the CPF top up “trick”, you can also top up your Medisave up to the Basic Healthcare Sum (currently $54,500). Like the CPF SA balance, your funds will be locked up, but on the other hand you can use it for medical expenses and health insurance premiums.
Supplementary Retirement Scheme: You can further reduce your chargeable income by putting cash in an SRS account, which is a pseudo-CPF SA that can only be withdrawn after retirement. Make sure you invest the money in there, or it will depreciate due to inflation.
How to claim: There is no need to declare your voluntary retirement top-ups, since both CPF and the 3 local banks operating SRS accounts will report your activities to IRAS. Do check your tax documents to make sure your contributions are reflected.
2. Have babies: Working Mother’s Child Relief, Qualifying Child Relief + Parenthood Tax Rebate
Some see babies as bundles of joy, others see them as noisy pooping machines. But maybe it’s better to see them as financial assets: Not only do you get an absurd amount of money from the gov’s Baby Bonus, you can also get a whole slew of tax reliefs:
|Tax reliefs||For whom||Amount|
|Qualifying Child Relief||Both parents||$4,000 per child ($7,500 if handicapped)|
|Working Mother’s Child Relief||Working mothers||15% for 1st child, 20% for 2nd child, 25% for 3rd or more|
|Grandparent Caregiver Relief||Working mothers||$3,000|
|Foreign Maid Levy Relief||Mothers||2x of maid levy paid (max. 1 maid only)|
There are WAY too many schemes to go into detail here, so please hop over to the IRAS page for different tax reliefs for parents. For the most part, these tax deductions are automatically granted, but you should check your tax statement just in case.
As you can see, tax-wise, it’s best to be a working mother because you get the most tax deductions. Have 3 kids and your chargeable income will be reduced by 60%! Get another $3,000 off just for having your parents babysit free-of-charge!
Wait, there’s more: The extremely generous Parenthood Tax Rebate of $5,000 for 1st child, $10,000 for 2nd, $20,000 per 3rd/subsequent child.
This isn’t a deduction from your taxable income — it’s a straight up rebate off your income tax bill! So if you keep producing children, you may never need to pay a cent in income tax…
How to claim: If this is the first time claiming your child-related tax relief, you will need to update your details when filing your taxes. Go to “Edit My Tax Form”, then “Deductions, Reliefs and Parenthood Tax Rebate”, and then “Child”. Key in the relevant details and update your claim. If you got child-related tax reliefs last year, this portion will be pre-filled for you.
3. Move in with parents / grandparents: Parent Relief
Next up on the government’s agenda: Finding a solution for the ageing population problem. The most obvious way out is invoke filial piety and get the elderly’s own children to care for them, right? Well guess what, there’s a tax break for that.
|Tax reliefs||Amount per dependant (max. 2)|
|Parent Relief (stay together)||$9,000|
|Parent Relief (stay apart)||$5,500|
|Handicapped Parent Relief (stay together)||$14,000|
|Handicapped Parent Relief (stay apart)||$10,000|
Though it’s called “Parent Relief”, this also applies to in-laws, grandparents, and grandparents-in-law — as long as they don’t earn more than $4,000 a year. But you can only claim for 2 dependents, and you and your spouse cannot double-claim on the same person.
Assuming your retired parents are not handicapped, the maximum tax relief you can get is $9,000 x 2 = $18,000 if you move in together.
(Otherwise, you can claim $5,500 x 2 = $11,000 but you have to show that you spent at least $2,000 a year supporting each one.)
How to claim: When filing your taxes, go to “Edit My Tax Form”, then “Deductions, Reliefs and Parenthood Tax Rebate”, and then “Parent”. Key in the relevant details and update your claim. If you claimed this tax reliefs last year, it will be pre-filled for you and you can make changes if needed.
4. Upgrading your skills: Course Fee Relief
Went for upskilling in 2020? Good for you — you would qualify for tax reliefs of up to $5,500.
The Course Fees Relief is for you if you took a course relevant to your current employment. You can claim the amount you spent on course and exam fees (up to $5,500) and have it deducted from your chargeable income.
If you went for a course that’s totally different in order to make a mid-career switch? Don’t throw away those invoices just yet; you can still claim the tax relief in the future when you transition to your new job.
How to claim: If you’re eligible, you can file a claim for this when filing your income tax. Go to “Edit My Tax Form”, then “Deductions, Reliefs and Parenthood Tax Rebate”, and then “Course Fees”. Enter your claim amount and update the form.
5. Claiming expenses incurred in the course of earning your income
Unless you’re the thick-skinned type whose catchphrase is, “Can claim or not?”, most of us incur some costs when we are employed. Some of these costs can be deducted from your chargeable income.
Although you can’t claim MRT fares or lunches, you might be able to subtract those employment expenses your employer subtly coerced you into but did not reimburse.
These include things like travel costs, entertaining clients and subscriptions you paid out of your own pocket.
If you’re self-employed and/or just started a side hustle, there’s also a whole bunch of expenses you can claim to reduce your chargeable income. For example, ongoing business expenses, R&D costs, renovation costs, even depreciation of fixed assets.
For Grab and taxi drivers, the expenses are gauged to be 40% of your driving income, so your chargeable income is typically 60% of earnings. If your expenses exceeded that, you can claim the actual amount.
Finally, landlords can claim expenses incurred in obtaining rental income, such as agent fees, maintenance costs and so on. The tax relief is generally calculated as 15% of your rental income + whatever interest you paid on your mortgage that year.
How to claim: If you’re a landlord, the standard 15% rental expenses will be pre-filled in your income tax form — there is no need to key in your expenses one by one. On top of the 15%, you can key in the interest on your mortgage to claim.
For everything else, there are separate claim procedures and you may need to submit income tax forms to IRAS. See the individual claim types for more details.
6. Donations: Money, shares, artefacts or artworks
You probably have some inkling that donating money to your favourite IPC (Institution of a Public Character) can help you save on your income tax. Isn’t that why the Tatler crowd is constantly organising charity galas?
It’s true: Donations to IPCs come with a juicy 250% tax deduction. Meaning if you donate $10,000, you get 250% x $10,000 = $25,000 taken off your chargeable income. However, the deduction is only applied in the following year. If you donate now, you get a tax break for YA2022, not YA2021.
It’s not just cash donations that are eligible to that 250% tax relief. Other tax deductible donations are:
- SGX-listed shares
- Units in unit trusts
- Artefacts (to National Heritage Board)
- Sculptures or artworks (to National Heritage Board)
So if you’ve inherited an amazing antique collection from your hoarder uncle… You know what to do.
How to claim: Donations to registered IPCs will be automatically submitted to IRAS for claims, so you do not need to declare it. Note that IPCs are now required to collect the details of donors (NRIC, FIN or UEN) in order to facilitate tax deduction. If your donation is eligible, the IPC’s receipt will say “Tax-Deductible” on it.
Illustration: How to reduce your income tax bill for YA2020 in Singapore
Let’s say your projected take-home pay (excluding the compulsory CPF contributions) is $80,000 this year, which means you’ll need to pay $3,350 in income tax. Ouch.
So what do you do? Everything in your power to get your chargeable income down to $40,000!
|Top up CPF SA (yours)||– $7,000|
|Top up CPF SA (your parents)||– $7,000|
|Put money in SRS account||– $12,500|
|Claim course fee relief||– $5,500|
|Claim Parent Relief for one parent||– $5,500|
|Make $1,000 donation to IPC||– $2,500|
With your chargeable income slashed in half, you will now be billed $550 in income tax come tax season 2021. That’s basically 1/6 of your original bill — pretty dramatic, I would say.
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