As the year draws to a close, one of the tasks on Heartland Boy’s to-do list is to manage his income tax. Indeed, he advocates taking a proactive, rather than a reactive, stance towards managing one’s tax bill. One simply cannot depend on government’s annual budget exercise to dish out generous tax rebates. In this article, Heartland Boy focuses on the tasks that must be completed within the current fiscal year in order for one to enjoy tax reliefs during the next tax reporting season. Specifically, he would like to recommend 4 lawful ways that every working adult can easily follow in the next few days so as to save on income tax in Singapore.
1. Participate In SRS
The Supplementary Retirement Scheme (‘SRS’) is a voluntary scheme that serves as a supplementary pillar to Singaporeans’ retirement funds. Account holder contributes cash into SRS and this contribution is capped at a maximum of S$15,300 per annum. Every dollar deposited into your account reduces your taxable income by a dollar. For instance, you save S$1,553 in income tax (11.5% X S$15,300) if your assessable income falls under that tax bracket. Heartland Boy took advantage of the SRS last year to enjoy personal relief on his income tax bill this year.
Heartland Boy has previously written a more detailed explanation on the workings of the SRS, indicating how the advantages clearly outweigh the disadvantages. Therefore, you still have time to head down to any of the 3 authorised local banks – DBS, UOB or OCBC to open and top up your SRS account. If that is too troublesome, simply open a SRS account online just like Heartland Boy did!
2. Top Up Your CPF Special Account
Otherwise known as the CPF Retirement Sum Topping-Up Scheme (‘RSTU), you can enjoy tax relief if you use cash to top up your CPF Special Account. You get dollar-for dollar tax relief, capped at a maximum of S$7,000 per annum. You will qualify for this tax relief as long as your Special Account does not exceed the Full Retirement Sum. (S$161,000 as at 2016)
For instance, Heartland Girl did a cash top up of $4,000 to her Special Account in 2015. This allows her to reduce her chargeable income by S$4,000 and brought it down to a lower income tax bracket. She paid fewer taxes as a result and reduced her income tax bill. By participating in the CPF Retirement Topping-Up Scheme, she has utilized a highly effective and cost efficient method to build up her retirement portfolio as well. Furthermore, the additional cash sitting in her Special Account is now earning a guaranteed risk-free 4% per annum.
3. Cash Top Up Your Medisave Account
If you find the Special Account too restrictive, why not consider doing a cash top up to your own Medisave account for tax relief? The Medisave account can be used for a variety of purposes, including payment for medical care and hospitalization expenses under certain circumstances. You can also use it to pay for the premiums of your integrated medical shield plans. Do note that the amount of funds allowed in the Medisave account is capped at the Basic Healthcare Sum amount. ($52,000 as at 2017)
4. Top Up Your Parents’ CPF Accounts
You will be pleased to learn that the CPF Retirement Sum Topping-Up Scheme is also extended to your loved one’s account. This means that you can also do a cash top up to your loved one’s Special Account or Retirement Account. (if recipient is over 55 years old) The same rules apply; the recipient’s Special Account or Retirement Account shall not exceed the Full Retirement Sum. Do note that this type of tax relief is also capped at S$7,000 per annum and have implications to your CPF withdrawal limits at age 55.
When Heartland Boy received his 13th month bonus in December, he did a one-time cash top up to his parents’ CPF. This helps to boost his parents’ payout from CPF Life in the future. At the same time, Heartland Boy will be able to enjoy tax relief that will reduce his chargeable income next year.
For young adults who have been giving their parents a monthly cash stipend, do consider utilizing the CPF RSTU instead. Via the CPF RSTU, you fulfill your duty as a filial child and also qualify for tax deductibles! It is one of the most sensible ways to save on income taxes in Singapore!
Likewise, if you do a cash top up to your parents’ medisave accounts, your parents will be eligible for tax reliefs since they are seen as the beneficiaries.
5. Donate to Approved Institutions
Subscribers of Heartland Boy would have read in his recent newsletter that successful people such as Bill Gates, Jack Ma and Robert Kiyosaki all preached about the concept of “give to receive”. The Singapore government has given further incentive by allowing one to claim a tax relief of 250% if one donates to a charity accredited with Institute of Public Charter (‘IPC’). You may go to the Charity Portal to find all the charities with IPC status.
Heartland Boy is particularly fond of this scheme as he can kill 2 birds with one stone. He can do a good deed and reduce tax at the same time. Therefore, Heartland Boy donated a small amount to New Life Stories last week. Heartland Girl chose this charity as she closely identifies with the beneficiaries, having worked with this group during her counselling sessions.
As a bonus tip, it is generally recommended for married couples that the one claiming the deduction be the one that has the higher earning power. Therefore, the good deed of donating to New Life Stories went to Heartland Boy. This counts as a BIG victory for Heartland Boy and makes him feel damn good.
Conclusion On How To Save On Income Tax In Singapore
Heartland Boy hopes that this article helps you to lower income taxes and achieve significant tax savings. The beauty in these methods lies in its simplicity. One does not require complex knowledge on finance or take on unnecessary risk to execute these recommended strategies. The fact that the Heartland Couple managed to do all of the above is a testament to that. All the 4 tips which Heartland Boy has recommended in this article will be automatically included in your tax filing. You can thank Singapore’s very efficient civil servants for this! Therefore, make full use of the next few days to reduce your tax bill next April. If you would like a summary of the major tax reliefs available, you can download this simple guide –More Tax Savings for Families courtesy of IRAS.
HLB, perfect post on this topic. Covers the big 4 and gives a good explanation. I’m skipping #1 and #2 until I settle my property needs (cash is essential) and going to do #3 and #4.
Thanks GMGH. Because I have settled my property needs, Heartland Girl and I managed to do a combination of 1-4 amongst us within the household.
For top up of CPF special account, you mentioned that “You will qualify for this tax relief as long as your cumulative CPF balances (Ordinary Account + Special Account + Medisave) do not exceed the Full Retirement Sum. (S$161,000 as at 2016)”
My understanding is that for those aged below 55 years , he will enjoy the relief so long as his special account balance doesn’t exceed the prevailing Full Retirement Sum as per example given in IRAS website under Example 3. https://www.iras.gov.sg/IRASHome/Individuals/Locals/Working-Out-Your-Taxes/Deductions-for-Individuals/CPF-Cash-Top-up-Relief/
Do correct me if my understanding is incorrect. Thanks!
Thanks for pointing this discrepancy out. I am contacting IRAS at the moment for further qualification. From the example 3 quoted in your link, it looks like I could be mistaken. I will clarify this issue after IRAS reverts.
Is it possible to know which tax bracket you are in before year end? My bonus is only announced in feb next year.
If your bonus is announced in February, it will not be computed into your income for the previous year.
If you would like to know which tax bracket you are likely to be in, I suggest you can use IRAS tax calculator!
Thanks for dropping by my website.
Collin Yeo says
So basically we have to calculate our income for the year and make the CPF cash top up before 31st Dec in order to take advantage of the relief right?
Yes, you have grasped the concept correctly!
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