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Sure, it’s doable 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 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 skilled appearances by an IRAS Director).
In case you hadn’t seen, IRAS will likely be elevating the earnings taxes for top earnings earners from YA 2024 onwards.
Beforehand, of us incomes greater than $320k yearly have been taxed on the most stage of twenty-two%, however transferring ahead, 2 new earnings 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 reputable methods to cut back your earnings taxes with out breaking the regulation or being convicted for tax evasion.
These embody the assorted 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 assorted reliefs correctly might imply the distinction between 2 complete earnings tax tiers – which may shave off a couple of thousand {dollars} for a lot of of us!
I’ve efficiently helped lots of my buddies cut back their earnings tax invoice through the years just by making use of for the proper reliefs (sure, the reliefs are NOT robotically 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 High-Up Reduction
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 High-up Reduction per Yr of Evaluation has additionally lately been raised to $16,000 (most $8,000 for self, and most $8,000 for relations) as of final yr.
This implies you’ll be able to declare for the utmost by doing the next strikes:
- Make a voluntary money high as much as your Particular/Retirement/MediSave Account
- High up your family members Particular/Retirement/MediSave Account
Notice: Family members refer to folks, parents-in-law, grandparents, grandparents-in-law, partner and siblings. Nonetheless, you’ll be able to solely get tax reliefs for top-ups to your partner or siblings’ if they’ve an annual earnings lower than $4,000 within the yr prior (wage, financial institution curiosity, dividends and/or pension) or they’re handicapped.
The tax reduction is simply 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 info and eligibility standards right here.
Notice that your whole CPF reduction (together with your voluntary top-ups) can be topic to the prevailing CPF wage ceilings, so for those who earn a wage in extra of those thresholds, then please learn this web page for extra info on the utmost CPF reduction you'll be able to 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 is able to help you 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 may need to think about investing it as a substitute. Learn this for some concepts on what you’ll be able to make investments your SRS monies in!
If you would like an easier, fuss-free technique of investing your SRS funds that doesn’t want a lot monitoring, try ETFs as a substitute – listed below are among the hottest ones that fellow SRS traders are going for.
3. Course charges reduction
If you happen to attended any permitted course(s) that’s related to your employment or vocation, then you too can declare as much as a most of $5,500 in course charges reliefs annually.
Notice: You can not declare for programs which are for leisure functions or basic abilities (e.g. baking / social media / primary web site constructing). Neither are you able to declare for programs that have been paid by way of 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 permitted 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 often robotically calculated and utilized in your tax invoice – supplied that your donation went to a registered IPC.
This implies your donation quantity will likely be deducted out of your statutory earnings to mirror your assessable earnings. From there, you’ll be able to then apply or declare your tax reliefs to derive your closing chargeable earnings and tax invoice.
For instance, for those who donated $1k to an permitted charity, $2.5k will likely be deducted out of your whole earnings to be assessed. And if that brings you right 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 through the interview, and though it didn’t make it to the ultimate video minimize, the reply is unquestionably value sharing right here!
2 completely 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 doable?
Somebody who doesn’t make any effort to cut back their taxes could most likely find yourself paying:
- $5,070 x 13 months = $65,910
- Minus $1k Earned Revenue Reduction (given robotically)
- Tax Payable = $550 on first 40k + (7% x $24,910) = $2,293.70
Now, distinction that with my buddy’s case, who’s of an identical earnings stage and has discovered to assert for the next reliefs:
- WMCR reduction of 15% + 20% on 2 children = 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 below Grandparent Caregiver Reduction (her retired mother stays together with her to take care of her children)
- $1,440 FDW levy reduction for her home helper
- $750 NSman Spouse reduction (since her husband served the nation final yr)
- Complete reliefs = $69,558.50
- Complete chargeable earnings = $65,910 – $69,558.50 = zero taxes
And that, my expensive, 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 children in costly Singapore. What tax reduction schemes can we trip on and max out?
For folks who’re supporting their youngsters
There are numerous schemes you’ll be able to leverage for tax reliefs, together with however not restricted to:
- Working Mom’s Baby Reduction
- Qualifying Baby Reduction / Handicapped Baby Reduction
- NSman Dad or mum Reduction
- International Maid Levy Reduction
- Grandparent Caregiver Reduction
Probably the most highly effective scheme is the WMCR, however the remaining could make a distinction too.
5. Working Mom’s Baby Reduction (WMCR)
In a bid to encourage married girls to stay within the workforce after having children, the Singapore authorities gives 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 as an example, a working mom of three younger children 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
- Complete = $90k however capped at $80k private tax reliefs
That’s ample to cut back her earnings tax tiers by 2 ranges, which interprets into an preliminary 15% tax charge being minimize to 7% as a substitute (!!!).
Sadly, for those who’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 fastened greenback reasonably than a proportion of their earnings.
Learn right here for why I believe that is NOT ultimate.
6. Qualifying Baby Reduction (QCR) / Handicapped Baby Reduction (HCR)
You may as well declare QCR of $4,000 per little one or $7,500 HCR per little one so long as you’re a dad or mum 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 will be a financially smarter choice to provide the QCR to the upper earnings partner.
7. Grandparent Caregiver Reduction (GCR)
For working mother and father who have interaction the assistance of their mother and father / parents-in-law / grandparents / grandparents-in-law to maintain your youngsters when you’re at work, you too can 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’ll be able to 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 in your family, you’ll be able to declare for two occasions of the full international home employee levy paid within the earlier yr 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 reduction you’ll be able to declare.
9. Dad or mum Reduction / Handicapped Dad or mum Reduction
To advertise filial piety and recognise people who’re supporting their mother and father, grandparents, parents-in-law or grandparents-in-law in Singapore, the federal government provides tax reliefs below this class. The necessities are:
- The aged dependent have to be dwelling in your family OR you incurred $2k or extra in supporting the aged dependent dwelling in a separate family
- Should be both 55 years of age or older, or is bodily or mentally disabled.
- For Dad or mum Reduction, your dad or mum/parents-in-law should not have earned an annual earnings 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.
Nonetheless, every dependant can solely have one claimant, so you probably have any siblings who may contest this with you, it’s possible you’ll need to work it out with them to determine who will get to assert for this tax reduction.
10. NSman Reduction (Self, Spouse and Dad or mum)
All eligible operationally prepared Nationwide Servicemen (NSmen) are entitled to NSman tax reduction, together with their spouse and oldsters in recognition of the assist given.
In case your husband is an NSman, you too can 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 dad or mum whose son is an NSman, every dad or mum can declare $750 whatever the variety of youngsters who’re NSmen. Sure, so which means despite the fact that I’ve two boys, I gained’t be capable to 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’ll be able to solely get EITHER the Spouse OR Dad or mum reduction of $750 (and never $750 x 2). Not truthful? Yeah, I believe 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 value a point out anyway as a result of for those who’re self-employed, this is likely to be relevant.
In case your whole CPF contributions have been lower than $5,000 within the yr earlier than and also you paid insurance coverage premiums by yourself life insurance coverage and that of your spouse (for the married males), you may be eligible to assert tax reliefs on these.
Tip: Use the final quarter of the yr to have a look at your taxes in an effort to 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 yr as your earnings, 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 assorted 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 annually to legally cut back my tax invoice!
Illustration: Taxes payable as a working mom
In my state of affairs, I’m a working mom of two younger youngsters and supporting my retired father who doesn’t dwell with me. I additionally contribute to three different mother and father (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 state of affairs are:
| Earned Revenue Reduction | $1,000 |
| CPF Money High-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 by way of SkillsFuture credit |
| Charity donations | $2,500 |
| Working Mom Baby Reduction | 15% + 20% (for two youngsters) |
| Qualifying Baby Reduction | $4,000 x 2 youngsters |
| Grandparent Caregiver Reduction | N.A. since solely my dad is retired, and he’s bodily incapable of taking care of my children. My in-laws, who assist out with my children sometimes, are each working and therefore don’t qualify below this reduction. |
| International Home Employee Levy Reduction | $60 x 12 months x 2 = $1,440 |
| Dad or mum Reduction | $5,500 since my dad doesn’t stick with me (this will quickly rise to $10k since as of this yr, he’s not able to strolling by himself) |
| NSman Reduction | N.A. (this ceased as of final yr 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 need to use the above desk as a “guidelines” to work in opposition to and calculate / declare in your personal relevant tax reliefs!
Probably the most important tax reduction that I get is unquestionably 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 Technique #4 (donate to charity) to attempt 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 might be value giving the complete QCR, GCR and Dad or mum Reduction to them in order that your whole family earnings taxes payable will turn out to be a lot decrease.
What different earnings tax hacks do you utilize?
Share for those who discovered this text useful!
With love,
Finances Babe
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