8 Things You Can Do Before the Year Ends to Reduce Your Personal Income Tax Bill

As work winds down towards the festive season for the majority of people, it is also a great time to take stock of the year that has passed and make plans for the year to come.

One of the best things Singapore residents can do for themselves is to engage in the annual ritual of tax planning, since our tax bill is based on what we do within a calendar year.

So grab a warm drink, and read on to learn about what you can do to legally reduce your tax bill in the coming Year of Assessment 2022 (YA 2022). As Singapore income tax is assessed on a “preceding year” basis, the income and tax reliefs relating to YA 2022 are the income and tax reliefs an individual earned in the calendar year 2021.

1) Make Voluntary Contributions Under the CPF Retirement Sum Topping-Up Scheme (RTSU)

To incentivise Singaporeans for taking proactive steps to bolster their retirement adequacy, tax reliefs are given for voluntary Central Provident Fund (CPF) top-ups made through the Retirement Sum Topping-Up (RTSU) scheme.

You’ll receive a dollar-for-dollar tax relief of up to $7,000 on cash top-ups made to your own CPF Special Account (SA), while top-ups made to your loved ones’ SA entitle you to a further tax relief of up to $7,000.

This means you can enjoy a total of $14,000 in tax reliefs through this method. Plus, these funds will now begin to earn you a guaranteed 4% per annum.

Visit the CPF website for more information on how to make CPF RTSU contributions.

2) Make Voluntary Contributions to Your MediSave Account (VC-MA)

Alongside RTSU contributions, you can also enjoy tax reliefs for making voluntary top-ups to your CPF MediSave Account (MA) in the preceding year, provided you earned some form of income (such as from work, rental, director’s fees) in that same year.

The amount of reliefs you will receive is the lowest of the following:

1) Amount of voluntary MA contributions made in that preceding year;
2) Prevailing CPF Annual Limit ($37,740 in 2021) minus mandatory CPF contributions made;
3) Prevailing Basic Healthcare Sum (BHS) ($63,000 in 2021), minus the MA balance before voluntary contributions.

Take note that, should the total mandatory and voluntary CPF contributions in the calendar year exceed the CPF Annual Limit, excess voluntary top-ups will be refunded without interest. You should thus plan ahead accordingly.

You can read more about tax reliefs for voluntary MediSave contributions on the IRAS website.

3) Contribute to Your Supplementary Retirement Scheme (SRS) Account

Supplementary Retirement Scheme (SRS) is a voluntary programme that provides tax incentives to Singapore residents who save (and invest) towards their retirements. SRS complements the mandatory CPF scheme.

You can enjoy dollar-for-dollar tax reliefs on all your SRS contributions made within the calendar year, subject to the annual SRS contribution limit of $15,300 for Singaporeans and Permanent Residents, and $35,700 for foreigners. Individual SRS providers might have their own cut-off dates that are slightly earlier than 31 December, so do check with the respective bank that administers your SRS account.

In addition to enjoying immediate tax reliefs at the time of contributions, you would also only be taxed for 50% of the withdrawal amount you make during retirement, though early withdrawals would be penalised.

Another thing to note is that by default, your SRS monies would only be earning the nominal savings account rate of 0.05%, so you should really look to invest your SRS funds in an appropriate portfolio.

Visit this page to learn more about growing your SRS funds here for a secure retirement.

4) Claim Under the Life Insurance Relief

If you are a self-employed person paying for your own life insurance policies, you can claim Life Insurance Relief if you meet all of the following conditions:

1) The total contributions sum of contributions in the preceding year is less than $5,000: compulsory employee CPF contributions, self-employed Medisave/voluntary CPF contributions, and voluntary cash contributions to your Medisave account.

2) You paid insurance premiums in 2021 (i.e., the preceding year) on your own life insurance policy (or that of your wife, if you are married)

3) The insurer from whom you bought your policy must have an office or branch in Singapore if the policies were taken on or after 10 August 1973.

Do note that only term and whole life insurance policies are eligible for this claim, which means personal accident, health insurance, and disability income plans are not applicable.

For more information, visit the IRAS website.

5) Take Up an Approved Course to Qualify for Relief

You could claim Course Fees Relief if you attended any course of study, seminar or conference conducted by a Singapore-registered entity this year for the purpose of “gaining an approved academic, professional or vocational qualification”.

You can use the online tool provided by the Accounting & Corporate Regulatory Authority (ACRA) to check if your course provider is Singapore-registered.

Courses for recreation, leisure or hobby, as well as those for general knowledge or skills, are not eligible. Polytechnic or university courses are not eligible for reliefs unless graduates have worked previously. For the purpose of this relief, vacation jobs or internships are not counted as valid employment.

You can claim for reliefs based on the course fees incurred by you, up to a maximum of $5,500 each year, including examination fees, registration/enrolment fees, and tuition fees. For courses that span over multiple years, you can amortise and claim course fee reliefs accordingly, even if you made full payment upfront.

Furthermore, if your assessable income does not exceed $22,000 throughout the duration of the course, seminar or conference, you may defer and claim the Course Fees Relief within a two-year period.

You can refer to the IRAS website for more details.

6) Make Charitable Donations for 2.5 Times Tax Relief

Until 2023, cash donations made to Community Chest or any approved Institution of a Public Character (IPC) entitle you to tax deductions of 2.5 times the qualifying donation amount. You can check if an organisation is an approved IPC using the Charity Portal.

In general, if the donation results in material benefit to the donor, tax deductions is granted only on the difference between the donation and the value of the benefit. However, for donations made on or after 19 March 2021, benefits given out in connection with a fundraising activity and fall within IRAS’ list of benefitscan be considered as non-commercial.

IRAS’ website has more information on tax reliefs for donations.

7) Make Necessary Expenditure on Your Rental Property

You could claim tax deductions on expenses related to your Singapore rental property if the expenses were incurred solely for the purpose of producing the rental income during the period of tenancy.

To simplify tax filing and reduce the burden of record-keeping, IRAS pre-fills the amount of qualifying expenses as 15% of the gross rent, without the need to declare or keep records of actual rental expenses incurred.

In addition, you can also claim mortgage interest on the loan taken to purchase the tenanted property. To do so, you would need to keep the supporting documents relating to the mortgage interest for at least 5 years.

If you do not wish to use the pre-filled amount, you can instead claim reliefs based on the amount of actual rental expenses incurred. Doing this might make sense if you plan to make big-ticket renovations or repairs, but note that you will be required to retain all supporting documents such as tenancy agreements, bank mortgage statements, invoices and receipts for at least 5 years.

You can refer to this list of allowable and non-allowable rental expenses.

8) Maximise Your Share of Shared Reliefs

Certain reliefs are shared among eligible loved ones, such as Qualifying Child Relief, Parent Relief and Grandparent Caregiver Relief. This means that if your loved one has already hit their personal relief cap, they should refrain from claiming for these reliefs, since it would not benefit them and deprive you of making claims.

By encouraging your family members to do their tax planning earlier and communicating with one another, you will be able to understand what reliefs each of you is still eligible for and better plan for what actions to take before the year is over.

If you realise that you have exceeded the relief cap only after receiving the Notice of Assessment next year, you can still file an amendment online to withdraw your share of reliefs claimed. This will allow those who are eligible to share the relief with you to file amendments to claim their additional share of reliefs.

A Word About the $80,000 Personal Income Tax Relief Cap

Since YA 2018, a Personal Income Tax Relief Cap of $80,000 per year applies to the total amount of all tax reliefs claimed. Any tax relief you claim that is above the $80,000 limit will be “lost”, i.e., the excess reliefs claimed will not help to reduce your taxable income any further, and they cannot be held over to deduct against future years’ income.

You can use the income tax calculator for YA 2021 to find out if you would hit the cap to make an informed decision on how much you would benefit from following these tips in this article. This is important because contributions made to your CPF, SRS and donations are not refundable.

Now that you’re armed with all these options,  you’re better equipped to plan ahead and welcome 2022 with no nasty surprises and regrets.

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