How to legally reduce your income tax in Singapore (2023 edition)

Sure, it’s attainable for a lot of middle-income earners to legally get away with paying zero taxes…that’s, if you know the way to be good about it.

I used to be not too long ago interviewed by Channel Information Asia to share my recommendations on how one can cut back one’s revenue taxes in Singapore, and you’ll watch the video below (which incorporates skilled appearances by an IRAS Director).

In case you hadn’t seen, IRAS will be raising the income taxes for high income earners from YA 2024 onwards.

Beforehand, people incomes greater than $320k yearly had been taxed on the most stage of twenty-two%, however transferring ahead, 2 new revenue tax brackets will likely be carried out:

• Anybody incomes greater than $500k will likely be taxed at 23%
• Anybody incomes over $1 million will likely be taxed at 24%

Earlier than you fret over your tax invoice, let me share the excellent news.

In Singapore, so long as you’re good about it, there are official methods to cut back your revenue taxes with out breaking the legislation or being convicted for tax evasion.

These embody the varied schemes beneath which you need to use to cut back your taxes payable. Whereas the utmost reliefs you’ll be able to declare is capped at $80,000, planning for and claiming the varied reliefs correctly might imply the distinction between 2 complete revenue tax tiers – which might shave off just a few thousand {dollars} for a lot of people!

I’ve efficiently helped a lot of my buddies cut back their revenue tax invoice through the years just by making use of for the proper reliefs (sure, the reliefs are NOT routinely given to you – there’s a little bit of planning and claims required!).

Let’s dive into how every of them work, and who’s eligible for which.

1. CPF Money Prime-Up Aid

If you make voluntary money contributions to your CPF account or that of your family members, you’ll be able to declare for tax reliefs on these. The utmost CPF Money Prime-up Aid per 12 months of Evaluation has additionally not too long ago been raised to $16,000 (most $8,000 for self, and most $8,000 for relations) as of final 12 months.

This implies you’ll be able to declare for the utmost by doing the next strikes:

• Make a voluntary money prime as much as your Particular/Retirement/MediSave Account
• Prime up your family members Particular/Retirement/MediSave Account

Observe: Family members refer to oldsters, parents-in-law, grandparents, grandparents-in-law, partner and siblings. Nevertheless, you’ll be able to solely get tax reliefs for top-ups to your partner or siblings’ if they’ve an annual revenue lower than $4,000 within the 12 months prior (wage, financial institution curiosity, dividends and/or pension) or they’re handicapped.

The tax reduction is barely as much as the Full Retirement Sum (FRS), so it’s a good suggestion to verify whether or not you and/or your family members are approaching the FRS in your CPF account(s) earlier than you make the contribution.

Take a look at extra data and eligibility standards here.

Observe that your whole CPF reduction (together with your voluntary top-ups) can be topic to the prevailing CPF wage ceilings, so if you happen to earn a wage in extra of those thresholds, then please read this page for more information on the maximum CPF relief you can qualify for.

2. Contribute to your Supplementary Retirement Scheme (SRS) account

One other simple hack is to open an SRS account with any of the three native banks and contribute money into the account, which can permit you to take pleasure in as much as $15,300 of tax reliefs ($35,700 for foreigners).

The one draw back of that is that deposits in your SRS account earn solely 0.05% p.a. curiosity, so that you would possibly wish to take into account investing it as an alternative. Read this for some ideas on what you can invest your SRS monies in!

If you need a less complicated, fuss-free technique of investing your SRS funds that doesn’t want a lot monitoring, check out ETFs instead – here are some of the most popular ones that fellow SRS investors are going for.

3. Course charges reduction

Should you attended any accepted course(s) that’s related to your employment or vocation, then you may also declare as much as a most of $5,500 in course charges reliefs every year.

Observe: You can not declare for programs which can be for leisure functions or common expertise (e.g. baking / social media / fundamental web site constructing). Neither are you able to declare for programs that had been paid through SkillsFuture credit or your employer. I do know, as a result of I attempted and needed to name in to make clear!

4. Donate to charity

If you donate to any charity that’s an accepted Establishment of a Public Character (IPC), you’ll be able to take pleasure in a 250% tax deduction based mostly in your donation quantity.

That is normally routinely calculated and utilized in your tax invoice – offered that your donation went to a registered IPC.

This implies your donation quantity will likely be deducted out of your statutory revenue to mirror your assessable revenue. From there, you’ll be able to then apply or declare your tax reliefs to derive your closing chargeable revenue and tax invoice.

For instance, if you happen to donated $1k to an accepted charity, $2.5k will likely be deducted out of your whole revenue to be assessed. And if that brings you all the way down to the decrease revenue tax bracket tier, it’ll undoubtedly carry you much more pleasure than the gratification you felt from doing deed. Speak about killing two birds with one stone!

More details on this here.

CNA requested me this query throughout the interview, and though it didn’t make it to the ultimate video minimize, the reply is certainly price sharing right here!

2 totally different Singaporeans, each incomes the median revenue of $5,070. One pays over $2,000 in taxes whereas the opposite will get away legally with paying ZERO taxes.

How is it attainable?

Somebody who doesn’t make any effort to cut back their taxes might most likely find yourself paying:

• $5,070 x 13 months = $65,910
• Minus $1k Earned Revenue Aid (given routinely)
• Tax Payable = $550 on first 40k + (7% x $24,910) = $2,293.70

Now, distinction that with my good friend’s case, who’s of an identical revenue stage and has realized to say for the next reliefs:

• WMCR reduction of 15% + 20% on 2 youngsters = 35% = $23,068.50
• $4,000 x 2 Qualifying Baby reliefs
• Maxed out her SRS contributions to get $15,300 of SRS reduction
• Maxed out her CPF voluntary money top-ups for $18,000 of reliefs
• $3,000 claimed beneath Grandparent Caregiver Aid (her retired mother stays together with her to take care of her youngsters)
• $1,440 FDW levy reduction for her home helper
• $750 NSman Spouse reduction (since her husband served the nation final 12 months)
• Whole reliefs = $69,558.50
• Whole chargeable revenue = $65,910 – $69,558.50 = zero taxes

And that, my expensive, is how one can legally get away with not paying revenue taxes in Singapore with out going to jail!

Okay, now for my scenario and for all of you guys who can relate to elevating youngsters in costly Singapore. What tax reduction schemes can we experience on and max out?

For folks who’re supporting their kids

There are numerous schemes you’ll be able to leverage for tax reliefs, together with however not restricted to:

• Working Mom’s Baby Aid
• Qualifying Baby Aid / Handicapped Baby Aid
• NSman Mum or dad Aid
• International Maid Levy Aid
• Grandparent Caregiver Aid

Essentially the most highly effective scheme is the WMCR, however the remainder could make a distinction too.

5. Working Mom’s Baby Aid (WMCR)

In a bid to encourage married ladies to stay within the workforce after having youngsters, the Singapore authorities affords the WMCR as an incentive.

So long as your baby is born earlier than 1 January 2024, you’ll qualify for the above WMCR quantities.

Because of this for example, a working mom of three younger youngsters with a yearly revenue of $150,000 can declare for the utmost of $80k tax reliefs (see calculation beneath):

• 15% x $150k = $22,500
• 20% x $150k = $30,000
• 25% x $150k = $37,500
• Whole = $90k however capped at $80k private tax reliefs

That’s ample to cut back her revenue tax tiers by 2 ranges, which interprets into an preliminary 15% tax price being minimize to 7% as an alternative (!!!).

Sadly, if you happen to’re nonetheless pregnant proper now and your baby is to be born after 1 Jan 2024, the dangerous information is that the WMCR coverage has been modified – moms who give start after this date will now have their reliefs pegged at a fastened greenback fairly than a proportion of their revenue.

Read here for why I think this is NOT ideal.

6. Qualifying Baby Aid (QCR) / Handicapped Baby Aid (HCR)

You can even declare QCR of $4,000 per baby or $7,500 HCR per baby so long as you’re a mum or dad and your baby remains to be not likely incomes an revenue.

This may be cut up between you and your partner, if want be.

Tip: As confirmed by IRAS, it might be a financially smarter resolution to offer the QCR to the upper revenue partner.

7. Grandparent Caregiver Aid (GCR)

For working dad and mom who have interaction the assistance of their dad and mom / parents-in-law / grandparents / grandparents-in-law to care for your kids whilst you’re at work, you may also declare for this class.

That is offered that the caregiver is already retired or doesn’t earn any annual revenue exceeding $4,000.

And even when your baby has greater than 1 caregiver, you’ll be able to solely declare for a most of $3,000 on one associated caregiver beneath GCR.

8. International Home Employee Levy (FDWL) Aid

For the ladies who employed a international home employee in your family, you’ll be able to declare for two instances of the full international home employee levy paid within the earlier 12 months on 1 home employee.

Should you’re wealthy sufficient to afford and make use of greater than 1 home helper, please read here for how much relief you can claim.

9. Mum or dad Aid / Handicapped Mum or dad Aid

To advertise filial piety and recognise people who’re supporting their dad and mom, grandparents, parents-in-law or grandparents-in-law in Singapore, the federal government provides tax reliefs beneath this class. The necessities are:

• The aged dependent should be dwelling in your family OR you incurred $2k or extra in supporting the aged dependent dwelling in a separate family
• Have to be both 55 years of age or older, or is bodily or mentally disabled.
• For Mum or dad Aid, your mum or dad/parents-in-law should not have earned an annual revenue exceeding $4,000

You possibly can declare for as much as 2 dependants, that means a most of $18k, or $11k if they don’t stick with you.

Nevertheless, every dependant can solely have one claimant, so if in case you have any siblings who would possibly contest this with you, you might wish to work it out with them to resolve who will get to say for this tax reduction.

10. NSman Aid (Self, Spouse and Mum or dad)

All eligible operationally prepared Nationwide Servicemen (NSmen) are entitled to NSman tax reduction, together with their spouse and oldsters in recognition of the help given.

In case your husband is an NSman, you may also declare $750 beneath the NSman Spouse Aid. Consider it because the nation thanking you for supporting your husband in his service to the nation.

And if you’re a mum or dad whose son is an NSman, every mum or dad can declare $750 whatever the variety of kids who’re NSmen. Sure, so which means though I’ve two boys, I gained’t be capable of declare 2 x the reliefs on every of them sooner or later.

Properly, what if you’re a mom the place each your husband and son are NSmen? In that case, you’ll be able to solely get EITHER the Spouse OR Mum or dad reduction of $750 (and never $750 x 2). Not honest? Yeah, I feel so too ?

11. Life insurance coverage reduction

This can be much less relevant to most of you readers right here (together with myself), however nonetheless price a point out anyway as a result of if you happen to’re self-employed, this is perhaps relevant.

In case your whole CPF contributions had been lower than $5,000 within the 12 months earlier than and also you paid insurance coverage premiums by yourself life insurance coverage and that of your spouse (for the married males), you’ll be eligible to say tax reliefs on these.

Read about the criteria for the various amounts of reliefs for life insurance here.

Tip: Use the final quarter of the 12 months to have a look at your taxes so to make the strikes you might want to cut back your tax invoice for when March – April 2024 comes alongside! The transfer / contribution must be made in the identical evaluation 12 months as your revenue, so DO NOT wait till it’s time to submit your tax submitting to behave – that’s the most important mistake made by most individuals!

Okay, so now that I’ve coated all the varied schemes and tax reliefs, right here’s how a guidelines so that you can work with + an illustration of my very own case, so you’ll be able to see how I exploit the reliefs to my benefit every year to legally cut back my tax invoice!

Illustration: Taxes payable as a working mom

In my situation, I’m a working mom of two younger kids and supporting my retired father who doesn’t dwell with me. I additionally contribute to three different dad and mom (my mum and in-laws), however since they’re nonetheless working, there are not any reliefs that I can use for his or her case.

Therefore, the quantity of reliefs that apply in my situation are:

Tip: You need to use the above desk as a “guidelines” to work towards and calculate / declare in your personal relevant tax reliefs!

Essentially the most important tax reduction that I get is certainly the WMCR, adopted by my strikes in topping up money to my CPF, my dad’s CPF and likewise to my very own SRS account.

The opposite reliefs barely transfer the needle, however assist to inch nearer to the utmost revenue reliefs cap of $80,000. And at any time when I discover myself on the sting of 1 revenue tax bracket, I’ll resort to Methodology #4 (donate to charity) to try to see if I can carry myself down one tier.

Should you’re in a family the place the husband is the higher-income partner, then it might be price giving the whole QCR, GCR and Mum or dad Aid to them in order that your whole family revenue taxes payable will turn out to be a lot decrease.

What different revenue tax hacks do you employ?

Share if you happen to discovered this text useful!

With love,
Funds Babe