Heartland Boy

Seriously Singaporean Financial Literacy

MENUMENU
  • About
  • Investment
    • Investment
      • REITS
      • Singapore Stocks
      • Singapore Property
      • Cryptocurrency
    • review-of-dividend-machines-by-the-fifth-person

      Review of Dividend Machines By The Fifth Person

      February 22, 2021 By Alison_Liew 7 Comments

    • performance-review-2022

      Heartland Boy 2022 Investment Performance Review

      posted in Investment, Singapore Stocks

    • hdb-bto-and-hdb-resale-prices-have-increased-are-they-still-affordable

      HDB BTO and HDB resale prices have increased, are they still affordable?

      posted in Investment, Singapore Property

  • Banking & Insurance
    • Banking & Insurance
      • Bank Deposits
      • Bank Loans
      • Credit Card
      • Insurance
    • review-gxs-bank-trust-bank

      Review of GXS bank and Trust bank Savings Accounts

      posted in Bank Deposits, Banking & Insurance

    • review-instarem-amaze-card-foreign-currency-fee-cashback

      Review of Instarem amaze Card: Avoid foreign currency fees, receive additional cashback

      posted in Banking & Insurance, Credit Card

    • benefits-insurance-singlife-careshield-plus

      6 benefits when you upgrade your long-term care insurance coverage with Singlife CareShield Standard or Singlife CareShield Plus

      posted in Banking & Insurance, Insurance

  • Retirement
    • Retirement
      • Singapore CPF
      • Singapore SRS
      • Taxes
    • cpf-calculate-interest-rate-increase

      How Are CPF Interest Rates Calculated? Will They Increase In A High Interest Rate Environment?

      posted in Retirement, Singapore CPF

    • invest srs

      Why Invest Your SRS Funds In ETF

      posted in Retirement, Singapore SRS

    • gst-increase

      Beat The GST Sales Campaigns Brought Out Some Irrational Financial Decisions

      January 29, 2023 By Alison_Liew Leave a Comment

  • Lifestyle
    • Lifestyle
      • Dining
      • Travel
      • Parenthood
      • Wedding
      • Others
    • review-of-mealpal-singapore-that-now-serves-hawker-food

      Review of MealPal Singapore That Now Serves Hawker Food

      posted in Dining, Lifestyle

    • My family holiday to Australia’s Brisbane, Gold Coast and Sunshine Coast

      posted in Lifestyle, Travel

    • how-much-my-family-saves-in-transport-costs-from-cycling

      How Much My Family Saves In Transport Costs From Cycling

      posted in Lifestyle, Parenthood

  • Resources
  • Contact

Retirement Taxes

What I Did This Year To Reduce My Income Tax

what-i-did-this-year-to-reduce-my-income-tax

I usually spring-clean my personal finances during the year-end period. One of the items on the agenda include taking the necessary actions this year to reduce my personal income tax for the next year. To my pleasant surprise, a move to a higher-paying job and the depletion of the parenthood tax rebates meant that I was facing my highest tax bill ever since I entered the workforce! Of course this is a happy problem but this still prompted me to explore all ways on how I could reduce my tax bill. This is what I did this year to reduce my income tax.

1. Strategic Use Of The Tax Reliefs Given To Parents

As parents, we are entitled to additional tax reliefs. My daughter Olympia was born in 2018 and the $5,000 Parenthood Tax Rebates given for the first child quickly ran out by 2020.

Since my wife is gainfully employed, she is entitled to the Working Mother Child Relief as well as the Grandparent Caregiver Relief. As the higher income-earner, it makes financial sense for the household that the Qualifying Child Relief (‘QCR’) is allocated completely to me instead. This reduces my chargeable income which is taxed at a higher-tier compared to my spouse. Therefore, couples who are parents should have an open and transparent talk amongst themselves to decide how to split the QCR.

2. CPF MediSave Always My First Port Of Call

I have written in the past that making a cash top up to my CPF MediSave is the best way to reduce one tax’s bill and this is still my preferred tax-relief tool. The interest rate is high at 4%, is more flexible in its use than the CPF Special Account (SA’) and once the Basic HealthCare Sum* is reached, mandatory MediSave contribution will go into the SA if it is still below the Full Retirement Sum*. Such a scenario is good as it accelerates the rate that I would reach FRS.

*Basic HealthCare Sum and Full Retirement Sum are $60,000 and $181,000 in 2020 respectively.

I logged into my CPF Online Services to check the allowable contribution.  To my dismay, I realised that I have reached the annual CPF contribution limit for the year, rendering me ineligible for any further CPF MediSave top-ups as shown in Diagram 1.

cpf-medisave-allowable-contribution

Diagram 1: Check the allowable contribution into your CPF MediSave

I am therefore forced to look for other ways to reduce my personal income tax bill.

3. Cash Top-Ups to Parents’ Retirement Accounts

I have written in the past that my parents’ Retirement Accounts (‘RA’) are well below the Basic Retirement Sum (‘BRS’). The optimistic way of looking at this situation is that there is a long way to go before the cash-top up option is exhausted as a tax relief tool for me. Sadly, this also means that their retirement outlook remains rather bleak without any support from the offspring.

With a higher income, I have given a higher allowance to my parents this year. As they are still working, a portion of this allowance is deposited into their CPF RA. For every CASH dollar that I voluntarily top up to my mum’s CPF RA, I am granted tax relief that reduces my chargeable income by an equivalent amount under the Retirement Sum Topping-Up (‘RSTU’) Scheme. Do note that the cash top-up relief applicable for this category is capped at $7,000 per annum.

4. Top Up My Supplementary Retirement Sum (‘SRS’)

I have been waiting in earnest for my bank to provide its usual year-end promotion for SRS. Unfortunately, there wasn’t any that applied only to fresh top-up of funds with no other strings attached. Nevertheless, I still proceeded to top up my SRS account although I did not maximise it. For every CASH dollar that I voluntarily top up into my SRS, I am granted tax relief that reduces my chargeable income by an equivalent amount.

A word of caution, don’t let your SRS funds idle as its purchasing power will get eroded by inflation in the long run. That is why I used my SRS funds to invest in Great Eastern GE205, which recently returned 2.07% p.a. upon reaching maturity after 3 years as shown in Diagram 2.

great-eastern-great205-maturity

Diagram 2: Heartland Boy’s GE GREAT205 returned 2.07% p.a. upon maturity

This is not a return to shout about, but it at least outperformed Singapore inflation rate and the 0.05% fixed interest rate offered by the bank during the same period.

With the maturity of his GREAT205 endowment plan as well as the injection of fresh funds, Heartland Boy must now decide on the next best place to park his SRS funds. Some considerations include Endowus, MoneyOwl and Syfe if it starts accepting SRS monies for its products such as Syfe REIT+.

5. Donated to IPC-approved charities

In 2020, I increased my donation to charities as most of them have their tills affected by the pandemic. For instance, I donated a part of the government handout to The Courage Fund, which provides relief and support to those affected by the current Covid-19 situation. It is under the NCSS Charitable Fund, an Institution of Public Character (IPC) which makes my donations tax-deductible.

Heartland Girl also fulfilled the 3 GIRO transactions for her UOB One Account by making $5 – $10 monthly GIRO donations to the Children Society, Singapore Heart Foundation and the Central Singapore CDC. This kills 2 birds with one stone as it is using part of the interest rate from the bank for a good cause as well as reducing her own taxable income.

What I Did To Reduce My Income Tax

Other less publicly-known schemes that I utilised in 2020 to lower my tax bill have already been documented in this blog post. Make good use of the remaining of 2020 to decrease your tax bill for the coming year. Item 5 is really a noteworthy route to pursue given that charities are facing lower donations.

This article is published on December 2020


3 Comments

« How I Plan To Use My SingapoRediscover Vouchers
Book Review Of Behind The Scenes of The Property Market »

Comments

  1. Johan Yu says

    December 14, 2020 at 9:07 pm

    How about Parenthood Tax Rebate (PTR)?

    Reply
    • Alison_Liew says

      December 15, 2020 at 7:28 am

      Hi Johan,

      I have finished utilising them!

      Reply

Trackbacks

  1. Review of Investing my CPF and SRS funds with Endowus | TheFinance.sg says:
    January 31, 2021 at 2:57 pm

    […] SRS account as an endowment fund had reached maturity. The timing also coincided with my year-end top-up to SRS which was intended to reduce my tax bill.  Wary of leaving my SRS funds idle, I decided to look around for robo-advisory solutions that […]

    Reply

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Welcome to Heartlandboy.com

Hello there, I am Heartland Boy! I am always thinking about how I can improve my financial literacy in order to achieve financial independence. This is the place to be if you are hungry for financial independence (sometimes good hawker food as well) and foolish enough to believe in the musings of Heartland Boy. Read More…

  • About Heartland Boy
  • Contact
  • Work With Us
  • Privacy Policy
As Seen On

Copyright © 2023 Heartland Boy · All Rights Reserved
All content expressed herein are the personal opinions of Heartland Boy and does not constitute the views of any company nor as professional financial advice.

Copyright © 2023 · Divine Theme on Genesis Framework · WordPress · Log in