Sure, it’s attainable for a lot of middle-income earners to legally get away with paying zero taxes…that’s, if you understand how to be good about it.
I used to be just lately interviewed by Channel Information Asia to share my recommendations on how one can cut back one’s earnings taxes in Singapore, and you may watch the video beneath (which incorporates professional appearances by an IRAS Director).
In case you hadn’t seen, IRAS can be elevating the earnings taxes for prime earnings earners from YA 2024 onwards.
Beforehand, people incomes greater than $320k yearly had been taxed on the most stage of twenty-two%, however shifting ahead, 2 new earnings tax brackets can be carried out:
- Anybody incomes greater than $500k can be taxed at 23%
- Anybody incomes over $1 million can 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 scale back your earnings taxes with out breaking the legislation or being convicted for tax evasion.
These embrace the varied schemes beneath which you need to use to scale back your taxes payable. Whereas the utmost reliefs you possibly can declare is capped at $80,000, planning for and claiming the varied reliefs correctly might imply the distinction between 2 complete earnings tax tiers – which might shave off just a few thousand {dollars} for a lot of people!
I’ve efficiently helped lots of my associates cut back their earnings tax invoice through the years just by making use of for the right 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 Reduction
Whenever you make voluntary money contributions to your CPF account or that of your family members, you possibly can declare for tax reliefs on these. The utmost CPF Money Prime-up Reduction per 12 months of Evaluation has additionally just lately been raised to $16,000 (most $8,000 for self, and most $8,000 for relations) as of final 12 months.
This implies you possibly can declare for the utmost by doing the next strikes:
- Make a voluntary money high as much as your Particular/Retirement/MediSave Account
- Prime up your family members Particular/Retirement/MediSave Account
Observe: Family members refer to folks, parents-in-law, grandparents, grandparents-in-law, partner and siblings. Nevertheless, you possibly can solely get tax reliefs for top-ups to your partner or siblings’ if they’ve an annual earnings lower than $4,000 within the 12 months prior (wage, financial institution curiosity, dividends and/or pension) or they’re handicapped.
The tax aid is barely as much as the Full Retirement Sum (FRS), so it’s a good suggestion to test 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 right here.
Observe that your whole CPF aid (together with your voluntary top-ups) can also be topic to the prevailing CPF wage ceilings, so in case you earn a wage in extra of those thresholds, then please learn this web page for extra data on the utmost CPF aid you possibly can qualify for.
2. Contribute to your Supplementary Retirement Scheme (SRS) account
One other straightforward hack is to open an SRS account with any of the three native banks and contribute money into the account, which is able to mean you can get pleasure from 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 may wish to take into account investing it as a substitute. Learn this for some concepts on what you possibly can make investments your SRS monies in!
If you would like a less complicated, fuss-free methodology of investing your SRS funds that doesn’t want a lot monitoring, take a look at ETFs as a substitute – listed here are a few of the hottest ones that fellow SRS traders are going for.
3. Course charges aid
If you happen to attended any authorized course(s) that’s related to your employment or vocation, then you can even declare as much as a most of $5,500 in course charges reliefs annually.
Observe: You can’t declare for programs which are for leisure functions or common abilities (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
Whenever you donate to any charity that’s an authorized Establishment of a Public Character (IPC), you possibly can get pleasure from a 250% tax deduction primarily based in your donation quantity.
That is normally routinely calculated and utilized in your tax invoice – supplied that your donation went to a registered IPC.
This implies your donation quantity can be deducted out of your statutory earnings to mirror your assessable earnings. From there, you possibly can then apply or declare your tax reliefs to derive your closing chargeable earnings and tax invoice.
For example, in case you donated $1k to an authorized charity, $2.5k can be deducted out of your whole earnings to be assessed. And if that brings you all the way down to the decrease earnings tax bracket tier, it’ll positively carry you much more pleasure than the gratification you felt from doing a great deed. Speak about killing two birds with one stone!
Extra particulars on this right here.
CNA requested me this query throughout the interview, and though it didn’t make it to the ultimate video lower, the reply is certainly value sharing right here!
2 totally different Singaporeans, each incomes the median earnings 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 scale back their taxes could most likely find yourself paying:
- $5,070 x 13 months = $65,910
- Minus $1k Earned Revenue Reduction (given routinely)
- Tax Payable = $550 on first 40k + (7% x $24,910) = $2,293.70
Now, distinction that with my pal’s case, who’s of an identical earnings stage and has discovered to assert for the next reliefs:
- WMCR aid 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 aid
- Maxed out her CPF voluntary money top-ups for $18,000 of reliefs
- $3,000 claimed below Grandparent Caregiver Reduction (her retired mother stays along with her to take care of her youngsters)
- $1,440 FDW levy aid for her home helper
- $750 NSman Spouse aid (since her husband served the nation final 12 months)
- Whole reliefs = $69,558.50
- Whole chargeable earnings = $65,910 – $69,558.50 = zero taxes
And that, my pricey, is how one can legally get away with not paying earnings taxes in Singapore with out going to jail!
Okay, now for my state of affairs and for all of you guys who can relate to elevating youngsters in costly Singapore. What tax aid schemes can we trip on and max out?
For folks who’re supporting their kids
There are numerous schemes you possibly can leverage for tax reliefs, together with however not restricted to:
- Working Mom’s Baby Reduction
- Qualifying Baby Reduction / Handicapped Baby Reduction
- NSman Father or mother Reduction
- International Maid Levy Reduction
- Grandparent Caregiver Reduction
Essentially the most highly effective scheme is the WMCR, however the remainder could make a distinction too.
5. Working Mom’s Baby Reduction (WMCR)
In a bid to encourage married ladies to stay within the workforce after having youngsters, the Singapore authorities presents the WMCR as an incentive.
So long as your little one is born earlier than 1 January 2024, you’ll qualify for the above WMCR quantities.
Which means that as an example, a working mom of three younger youngsters with a yearly earnings 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 scale back her earnings tax tiers by 2 ranges, which interprets into an preliminary 15% tax fee being lower to 7% as a substitute (!!!).
Sadly, in case you’re nonetheless pregnant proper now and your little one is to be born after 1 Jan 2024, the dangerous information is that the WMCR coverage has been modified – moms who give beginning after this date will now have their reliefs pegged at a mounted greenback reasonably than a proportion of their earnings.
Learn right here for why I believe that is NOT supreme.
6. Qualifying Baby Reduction (QCR) / Handicapped Baby Reduction (HCR)
You can even declare QCR of $4,000 per little one or $7,500 HCR per little one so long as you’re a mother or father and your little one continues to be probably not incomes an earnings.
This may be cut up between you and your partner, if want be.
Tip: As confirmed by IRAS, it could be a financially smarter determination to present the QCR to the upper earnings partner.
7. Grandparent Caregiver Reduction (GCR)
For working dad and mom who interact the assistance of their dad and mom / parents-in-law / grandparents / grandparents-in-law to deal with your kids when you’re at work, you can even declare for this class.
That is supplied that the caregiver is already retired or doesn’t earn any annual earnings exceeding $4,000.
And even when your little one has greater than 1 caregiver, you possibly can solely declare for a most of $3,000 on one associated caregiver below GCR.
8. International Home Employee Levy (FDWL) Reduction
For the ladies who employed a international home employee to your family, you possibly can declare for two occasions of the whole international home employee levy paid within the earlier 12 months on 1 home employee.
If you happen to’re wealthy sufficient to afford and make use of greater than 1 home helper, please learn right here for a way a lot aid you possibly can declare.
9. Father or mother Reduction / Handicapped Father or mother Reduction
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 offers tax reliefs below 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 Father or mother Reduction, your mother or father/parents-in-law should not have earned an annual earnings exceeding $4,000
You possibly can declare for as much as 2 dependants, which means a most of $18k, or $11k if they don’t stick with you.
Nevertheless, every dependant can solely have one claimant, so when you’ve got any siblings who may contest this with you, it’s possible you’ll wish to work it out with them to resolve who will get to assert for this tax aid.
10. NSman Reduction (Self, Spouse and Father or mother)
All eligible operationally prepared Nationwide Servicemen (NSmen) are entitled to NSman tax aid, together with their spouse and fogeys in recognition of the assist given.
In case your husband is an NSman, you can even declare $750 below the NSman Spouse Reduction. Consider it because the nation thanking you for supporting your husband in his service to the nation.
And in case you are a mother or father whose son is an NSman, every mother or father can declare $750 whatever the variety of kids who’re NSmen. Sure, so which means despite the fact that I’ve two boys, I received’t be capable of declare 2 x the reliefs on every of them sooner or later.
Effectively, what in case you are a mom the place each your husband and son are NSmen? In that case, you possibly can solely get EITHER the Spouse OR Father or mother aid of $750 (and never $750 x 2). Not truthful? Yeah, I believe so too 🙁
11. Life insurance coverage aid
This can be much less relevant to most of you readers right here (together with myself), however nonetheless value a point out anyway as a result of in case you’re self-employed, this could be 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 can be eligible to assert tax reliefs on these.
Tip: Use the final quarter of the 12 months to take a look at your taxes so that you could make the strikes it is advisable 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 earnings, so DO NOT wait till it’s time to submit your tax submitting to behave – that’s the largest 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 possibly can see how I take advantage of the reliefs to my benefit annually 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 reside 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:
| Earned Revenue Reduction | $1,000 |
| CPF Money Prime-Up Reduction | $8,000 for myself $8,000 for my dad |
| Supplementary Retirement Scheme Reduction | $15,300 |
| Course Charges Reduction | N.A. since I paid through SkillsFuture credit |
| Charity donations | $2,500 |
| Working Mom Baby Reduction | 15% + 20% (for two kids) |
| Qualifying Baby Reduction | $4,000 x 2 kids |
| Grandparent Caregiver Reduction | N.A. since solely my dad is retired, and he’s bodily incapable of taking care of my youngsters. My in-laws, who assist out with my youngsters often, are each working and therefore don’t qualify below this aid. |
| International Home Employee Levy Reduction | $60 x 12 months x 2 = $1,440 |
| Father or mother Reduction | $5,500 since my dad doesn’t stick with me (this will quickly rise to $10k since as of this 12 months, he’s not able to strolling by himself) |
| NSman Reduction | N.A. (this ceased as of final 12 months since my husband has formally MR-ed and completed his reservist) |
| Life Insurance coverage Reduction | N.A. since my whole CPF employment contributions alone are already >$5k |
Tip: You should utilize the above desk as a “guidelines” to work towards and calculate / declare to your personal relevant tax reliefs!
Essentially the most important tax aid that I get is certainly the WMCR, adopted by my strikes in topping up money to my CPF, my dad’s CPF and in addition to my very own SRS account.
The opposite reliefs barely transfer the needle, however assist to inch nearer to the utmost earnings reliefs cap of $80,000. And at any time when I discover myself on the sting of 1 earnings tax bracket, I’ll resort to Methodology #4 (donate to charity) to try to see if I can carry myself down one tier.
If you happen to’re in a family the place the husband is the higher-income partner, then it could be value giving all the QCR, GCR and Father or mother Reduction to them in order that your whole family earnings taxes payable will grow to be a lot decrease.
What different earnings tax hacks do you employ?
Share in case you discovered this text useful!
With love,
Funds Babe
