Reducing Income Tax in Singapore 101
For each dollar of your income, you need to pay a certain amount of tax based on your income bracket. This can be an obscenely high amount for thousands of people in Singapore. Planning how to reduce income tax in Singapore ahead is extremely important especially if you don’t want to pinch your pennies when you file your taxes.
Although no tax situation is the same, there are certain steps you can take to lower your taxable income. We’ve gathered some tips for you below.
Here at OMY Singapore, you will discover the following:
- Taxes in Singapore
- Tax Relief vs. Tax Rebate
- How to Reduce Income Tax in Singapore: Ways You Should Know
Taxes in Singapore
Before you know how to reduce income tax in Singapore, you first need to know how taxes are charged in the country.
Based on IRAS’ tax calculator, individuals in Singapore don’t need to pay taxes on the first S$20,000 you earn. The next S$10,000 of their income will be taxed at 2%, and this increases the more money you earn. The highest income tax rate is 22%, which is for individuals who earn more than S$320,000 per year.
Tax Relief vs. Tax Rebate
Those who want to know how to reduce tax in Singapore usually interchange tax relief and tax rebates. However, the two are not the same.
Unlike tax reliefs, tax rebates are not guaranteed and are dependent on the government’s decision on the assessment year. For instance, in 2019, the Singapore government granted up to S$200 tax rebate to all tax residents as part of the Bicentennial Bonus.
Other tax rebates involve parents. For instance, the Parenthood Tax Rebate or PTR is designed to encourage individuals to have children. For this tax rebate, each parent can claim for a qualifying child once, which can be around S$20,000. However, this is only applicable to parents who have 5 children or more.
How to Reduce Income Tax in Singapore: Ways You Should Know
Tax reliefs are deductions you can make on your total payable income tax. The methods on how to reduce income tax in Singapore were designed by the government to encourage economic and social objectives like the advancement of skills, family formation, and filial piety.
The various tax deductions cover donations to registered charities, economic contributions to Singapore, and contributions to family, and these deductions are made against your chargeable income such as income from your side hustles, rental properties, and 9-to-5 job.
When it comes to how to reduce tax in Singapore, keep in mind that the total tax relief you can claim in Singapore is S$80,000.
Upgrade your skills and do a course
You may get tax relief for courses that you’ve attended, as long as the course is connected to your line of work, and if you can prove that you paid for it yourself. Your course fee relief can amount to up to S$5,500.
If you took a course that will help you switch careers, this is also claimable as IRAS course fee relief. For instance, if you want to switch to a marketing career from real estate, and you took a course to help you in your new career path, you can take advantage of this.
Make a donation to a charity
Through this method on how to reduce income tax in Singapore, you can help other people and lessen your tax burden.
In order to enjoy this personal tax relief in Singapore, you must make a donation to a charity that is registered as an Institute of a Public Character in the country. Through this, you can get a whopping 250% in tax deductions based on how much you donated. This is only valid until December 2023.
Build your retirement fund
The government never fails to let people understand how important it is to plan for retirement. To encourage more Singaporeans to do this, tax relief is offered for people who actively do the following:
CPF Cash Top-Up Relief
This is one of the best ways to build the nest egg for your parents and yourself and get tax relief. Keep in mind that this doesn’t only apply to parents, but also your spouse, siblings, and grandparents. It’s like you’re killing two (or three!) birds with one stone
However, your top-up has to be in cash, and it should not be a transfer made from one CPF account to another. As long as you top-up your or your parent’s SA or RA, you can enjoy this tax relief.
You can only claim up to S$8,000 when you top up your CPF with cash and an additional S$8,000 for your family members.
More From OMY: What Is The Maximum CPF Contribution?
MediSave Account voluntary contribution
Another way on how to reduce income tax in Singapore legally is to make a voluntary contribution to your MediSave Account. This is great for self-employed individuals or those who simply want peace of mind that their MediSave account has been beefed up. You can only do this if you have not reached the Basic Healthcare Sum.
Another method you can follow on how to reduce income tax in Singapore is through the SRS relief. This is the actual amount contributed to your SRS, up to limits. However, make sure that you’re okay with leaving your money in this account until you turn 62 years old since withdrawal limitations are limited.
More From OMY: Is SRS Top Up Worth It?
Singapore is extremely grateful to those who serve or served as an NSMan of the Singapore Armed Forces.
Personal tax relief in Singapore is rewarded which can be around S$3,500 to S$5,000, depending on whether you performed NS duties for the year of assessment. Meanwhile, the general population NSMan can enjoy up to S$3,000 tax relief. Spouses of eligible NSMan can also receive an automatic S$750 personal relief from IRAS for the assessment year.
Rental expenses deductions
You may also enjoy Singapore income tax relief on your rental expenses, which are the expenses you made in incurring the rental income. You can claim expenses based on 15% of the gross rental income.
Business expenses deductibles
All business owners know that there are operational costs you need to account for, no matter how big or small your business is. Thankfully, you can claim these as business expenses. Examples of business expenses that can be used for Singapore income tax relief include CPF contributions, accounting fees, advertising, skills development levy, foreign workers levy, and many more.
Life insurance relief
Whether you’re self-employed or unemployed, you may be dealing with low CPF contributions. If the total compulsory contributions, self-employed MediSave/voluntary contributions, and voluntary contributions to your MediSave account are below S$5,000, then you can qualify for the life insurance tax relief on premiums you paid for on your own, or through your spouse’s insurance policy.
Work from home expenses deductions
If you still work from home, you may be eligible to claim Work from Home expenses that are not reimbursed by your company. This can include telecommunication charges and electricity charges against your employment income.
Before you can enjoy this tax relief in Singapore, you need to compare your bills before and after you started working from home.
A Word from OMY
Learning about tax deduction in Singapore is easier than you think. But because most of these methods on how to reduce income tax in Singapore require e-filing, make sure to set aside time every April to ensure you filed for tax reliefs you are eligible for. This way, you can decrease your financial burden and enjoy huge savings.
More From OMY: What Is The Maximum Amount Of Tax Relief We Can Get From Our CPF Each Year?