In an article published a couple of years back, Heartland Boy guided that it is possible to save on income taxes in Singapore by taking these actions:
3.Cash top up your CPF Medisave
4. Top up your parents’ CPF Accounts
5. Donate to approved institutions
Even till today, Heartland Boy is still practising a combination of these tax reliefs to reduce his chargeable income. However, the aforementioned methods are only effective in lowering our income tax obligations for next year’s assessment. Given that we are just issued our Notice of Assessment for the Year of Assessment 2020, the purpose of this article is to review other tips that could help in reducing our current income tax obligations. To be even more specific, it is not about reducing the total bill size, but more about how we can reduce our personal income tax cashflow in Singapore.
1.Opt for interest-free monthly interbank GIRO facility
Inland Revenue Authority of Singapore (‘IRAS’) allows taxpayer to pay their tax bill via interbank GIRO in either one lump sum or via interest-free monthly instalments over 12 months. Heartland Boy thought it is a given that every taxpayer would opt for the interest-free monthly instalment option. Well, apparently not. According to The Straits Times, around 40% of taxpayers here still choose to settle their taxes in one lump sum. This is baffling to Heartland Boy because unlike home mortgage or credit card debt, paying your tax bill via instalment is totally interest free! In layman terms, there is no penalty/extra cash to be forked out for stretching your tax liability over a longer permissible period. Furthermore, paying your tax bills via interbank GIRO means that everything is automated. Therefore, there’s no worry of having “forgotten” to pay your tax bill.
Heartland Boy is harping on this because there is an opportunity cost to money that often seems to be ignored. Money that is not used immediately to pay for your personal income taxes could be used to earn a return. Heartland Boy shall illustrate this with an example. John has an income tax bill of $6,000. He has the option of A) making an immediate lump sum payment or B) settling his tax bill via interest-free instalments of $500 each month over a period of 12 months. If John chooses Option B, he would find that he has $5,500 extra cash balances still remaining in his bank account in the second month compared to Option A. As seen in Diagram 1, here is the additional return from the same money meant for John’s tax bill as a result of choosing Option B as his payment mode.
If the money is deposited into Singlife Account and earning 2.5% interest rate, the additional interest generated would have been $68.80. That’s not all, if one is capable of making their monies work even harder and getting a higher 8% return, the additional cash is calculated at $220. As highlighted in Diagram 1, the option of paying your income taxes via interest-free monthly instalment is almost a no-brainer.
How To Change Your Giro Payment Plan Online
You can first find out about your current payment plan by logging into myTax Portal and clicking “My Payment Plan” under Account as shown in Diagram 2.
Horror of horrors, it turns out that Heartland Girl belonged to the 40% cited in The Straits Times article. Rather than risk his marriage, Heartland Boy wisely skipped the questioning and jumped into problem-solving mode. By using the myTax Mail function, he immediately wrote an email to IRAS to request for a change in the mode of payment. A couple of weeks later, Heartland Girl successfully switched from lump-sum GIRO payment into interest-free monthly GIRO payment as shown in Diagram 3.
Of course, for readers who have not chosen GIRO payment yet, you can conveniently arrange for interbank GIRO with any of the 3 local banks as shown in Diagram 4. Just remember to choose the interest-free monthly instalment option please.
Tip 2: Defer Tax Payment (Covid-19 Measure)
In one of the 4 Budget announcements announced in 2020, the Singapore Government has allowed a 3-month deferment for personal income tax payments. This measure is to help taxpayers manage their personal income tax cashflow during difficult economic times. Self-employed people will automatically have their income tax deferred while employees can apply for a 3-month deferment on IRAS website. The deadline for applying tax deferment is 31 July 2020, so do check if you are still eligible.
Based on Tips #1 and #2, Heartland Boy successfully deferred his tax payment to commence from August 2020 instead. As shown in Diagram 5, his tax obligations will be spread over 9 months and this greatly helps with the household cashflow. Not to forget that the 3-month delay will allow his savings to work harder to earn a higher return during the interim.
Heartland Boy’s tax bill is actually heftier this year because he has almost exhausted his Parenthood Tax Rebate credits. Therefore, by practising the 2 tips above, he is glad to be able to reduce his personal income tax cashflow. Hopefully, it will be useful for you as well as we aim to address this part of the tax cycle.
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