As the 2016 personal tax filing season approaches, we look at some ways to lower your tax bill. We also weigh up some of the more recent tax changes and consider the ways they can impact you.
Achieving tax efficiency is a continuous process and broadly we can group them into two groups:
A. Claims that you can make at the point of tax filing
B. Things that you can do now or in the future to lower your next tax bill
In some instances, what you do (group b) will also have an impact on the claims that you qualify for and are able to make at the point of tax filing (group a).
To illustrate, we have organised our content below using these two groups.
Group A: Claims that you can make at the point of tax filing
1. Claim your tax reliefs
When it’s time for tax filing, be sure to claim the tax reliefs and rebates that you are entitled to. Some examples are the Qualifying child relief (QCR), Working mother’s child relief (WMCR), parents relief and course fee relief.
2. Claim business expenses against business income
If you carry on a trade or business as a sole proprietor or through a partnership, the expenses that you have incurred for your business may qualify for tax deduction. Claim the deductions in your tax return to lower your chargeable income.
Productivity and Innovation Credit (PIC)
expenses may also qualify for enhanced tax credits. Claim these to bring down your overall taxes.
3. Don’t forget your tax losses
If you carry on a trade or business and derive tax losses during the year, do not neglect these losses.
Trade losses and unabsorbed capital allowances (i.e. allowances that you can claim on the assets you use in your business) from your business can be used to offset against other income that you derive/receive. Some examples of such income include employment, rent, interest income as well as income from other businesses.
By offsetting the tax losses against your other income, you lower your total chargeable income and tax bill.
4. Claim expenses against rental income
If you let out residential properties, there are some expenses which you may be able to claim against the rental income that you derive. Find out on the available tax claims here . Also you might be interested to know that from Year of Assessment (YA) 2016, you can choose whether to claim actual or deemed expenses. Read more about it here .
Group B: Things that you can do now or in the future to lower your next tax bill
5. 250% tax deduction for donations
Qualifying donations made to Institutions of a Public Character (IPC) and other approved recipients from 2016 to 2018 are entitled to 250% tax deduction.
For example, for a $500 donation made, you will get $1,250 in tax deduction in your tax bill. Support the causes close to your heart and get a tax credit for it.
6. Benefits-in-kind or Cash allowances
If you are an employee, you may receive benefits from your company in areas such as housing, car or clothing. Commonly these benefits can take the form of benefits-in-kind (e.g. residence provided by company) or cash allowances (e.g. you receive a housing allowance for renting an apartment).
Sometimes whether these benefits are received as benefits-in-kind or cash allowances can make a difference when it comes to tax. Two examples are residence and car benefits.
From YA 2015, for residence or serviced apartment (not within hotel building), this is how benefits-in-kind will come up against cash allowances in terms of taxable benefit to the employee.
Benefits-in-kind: Property’s Annual Value (AV) less total annual rent paid by employee
Cash Allowances: Amount is taxable in full
If you are offered a residence with AV of $50,000 at no rent or cash allowances of $48,000, opting for the cash allowance may be more advantageous. The converse may also be true.
If you drive for work purposes, you may receive reimbursements or cash allowances for your vehicle expenses.
The reimbursements you receive for carpark, ERP and mileage incurred for business purpose are not taxable but cash allowances are taxable in full. So if you are given a choice and it makes sense for your situation, you might just want to go with the former.
The tax treatment for the benefits varies according to their type and form and the possibilities are wide. Be sure to check out the options you have and their tax treatment before you choose one over another.
7. CPF cash top-up relief
If you are a Singapore citizen or PR, the maximum CPF cash top-up relief you can get is $14,000. This comprises $7,000 to your own CPF account and $7,000 to the CPF accounts of qualifying family members.
To illustrate, if your marginal tax rate is 15%, you can potentially save up to $2,100 (i.e. $14,000 x 15%) in taxes. So you might want to make CPF cash top-ups, but one thing to note is that this relief is only available for cash top-ups, excluding transfers from other CPF accounts.
8. Supplementary Retirement Scheme (SRS) contribution
As a Singapore tax resident, you can claim tax reliefs on the SRS contributions that you make.
From 1 Jan 2016, annual SRS contribution cap has been increased from $12,750 to $15,300 (i.e. 15% x $102,000*) for SRS members who is Singapore citizen or PR.
With this increased cap, you might want to make higher SRS contributions to lower your tax bill. To illustrate, if your marginal tax rate is 15%, you can potentially take $2,295 (i.e. $15,300 x 15%) off your tax bill by contributing up to the capped amount.
However be sure to find out how this scheme works. The money is locked up in the SRS account and generally to be free of penalty and to obtain highest tax savings, the SRS monies should be withdrawn over 10 years starting from the statutory retirement age.
Upon withdrawal, 50% of the amount will be taxed. Early withdrawal, except under special circumstances such as permanent disability and bankruptcy, will incur a 5% penalty.
* Based on 17 months of CPF monthly salary ceiling of $6,000
Keep in mind the claims you qualify for and reflect them in your tax returns come April (group a). When looking ahead, consider what may be relevant for you under group b.
The above is a general walk through of some common tax saving tips. There may be more ways where you can obtain tax savings depending on your situation and circumstances. Some ways may also be more relevant to you and others less so. Talk to an advisor to find out more.
We hope this post has piqued your interest on minimising your taxes. If you have a question, we’ll be happy to hear from you and do drop us a note.