As the year draws to an end, it also means the window for reducing your tax bill for the Year of Assessment 2023 (YA 2023) is closing. This is because the size of your tax bill depends on your income, expenditure and deductions from 1 January 2022 to 31 December 2022.
Note: Year of Assessment 2023 is for income earned from 1 Jan 2022 to 31 Dec 2022.
We’ve compiled the actions you can still take to (legally) reduce your income tax, provided you complete these actions by 31 December 2022. But before we go into them, let’s first understand the new Personal Income Tax Relief Cap and recap how our taxes are calculated, so we can better evaluate whether these tax-reducing measures are worth our time and effort.
Personal Income Tax Relief Cap Of $80,000
A policy that took effect from YA 2018 is the Personal Income Tax Relief Cap, which limits the total amount of personal reliefs an individual can claim to $80,000 per YA. If you already reached this cap, taking further steps to boost personal reliefs will not reduce your tax bill.
You can make use of IRAS’ income tax calculator to check if you’ll be affected by this cap, though according to IRAS, the “vast majority of taxpayers are unaffected by the relief cap”.
You might think that you should always max out as many deductions as you possibly can, but if doing so does not change your tax bracket significantly, you might decide that the effort and opportunity cost of taking certain actions may not be worth it.
How Is My Income Tax Calculated?
Here are the basics of calculating your income tax in Singapore.
Assessable income refers to the total income you earn. For most of us, our assessable income would comprise mainly of the salary received from our job. It can also include the income received from part-time or freelance jobs, or rental income from properties.
Not all income earned in Singapore are considered assessable income. For example, earnings from lottery are not taxable. Neither are capital gains made from stocks or property investments.
The table below is a non-exhaustive list of what are the taxable and non-taxable items.
|Taxable Income||Non-Taxable Income|
|Salary From Employment||Overseas Earnings|
|Bonus||Lottery Winnings (e.g. 4D, Toto)|
|Rental Income||CPF LIFE Payouts, Government Pensions|
|Part-Time Work/Freelance Work||Capital Gains (e.g. profits from stocks, properties)|
|Withdrawal From SRS||Alimony and Maintenance Payment|
Chargeable income refers to the total amount that you would be taxed after deducting personal reliefs from your assessable income. As your chargeable income increases, you can expect your income tax payable as a percentage of your total income to increase.
Note: Some people mistakenly use the term “Chargeable Income” interchangeably with “Assessable Income”.
If you are looking at the income tax that you are expected to pay and think that the amount looks rather high, it’s not too late to take action.
#1 Voluntary CPF Special Account Top-Ups
We all need a plan to save for our retirement. If your plan to grow your retirement nest egg is to stash money in a savings account, you will be better off topping up your own CPF Special Account (SA) and/or your loved ones’ CPF SA.
Why? Every dollar contributed through voluntary CPF top-ups makes you eligible for a dollar-for-dollar tax relief for your income tax.
This means you enjoy tax reliefs of up to $8,000 on cash top-ups to your SA, and a further $8,000 tax relief on cash top-ups to your loved one’s SA account. This includes Medisave top-ups. By lowering your chargeable income by up to $16,000, you may fall into a lower tax bracket and enjoy even greater tax savings.
In addition, your money is now in a virtually risk-free investment instrument that gives you 4% per annum, without any fees!
#2 Voluntary Medisave Top-Ups
While CPF SA top-ups are a well-known method to receive tax reliefs, a lesser mentioned fact is that you can also claim tax reliefs for making voluntary contributions to your Medisave account if you have not reached your Basic Healthcare Sum (BHS), which for those who are turning 65 in 2021, is $63,000.
This is a great way to receive tax benefits for setting aside money for medical expenses, including paying your MediShield Life and integrated shield plan premiums. Moreover, monies in your Medisave Account earn at least 4% interest per annum.
Due to the 2022 CPF changes, Medisave top-ups now share the same tax relief cap of $8,000
#3 Contribute To A Registered Tax-Deductible Charity
Cash donations made to an approved Institution of a Public Character (IPC) or the Singapore Government for causes that benefit the local community are deductible donations, provided you do not receive any material benefits, such as advertising exposure or other gifts in kind.
Not all registered charities are approved IPCs. Donations made to a charity without approved IPC status are not tax-deductible. You can search if an organisation is an approved IPC at the Charity Portal.
A donation made to an approved institution would allow the donor to claim tax relief of 250% of the amount donated. As we’ve observed previously, if you are in a high-income bracket, making tax-deductible donations to approved-charitable institutions can really help you bring down your chargeable income.
All donations must be made before the end of the year (December 2022) for you to claim your tax relief for YA2023.
#4 Use The Supplementary Retirement Scheme
The Supplementary Retirement Scheme (SRS) is part of the government’s multi-pronged strategy to address the retirement needs of Singaporeans. Contributions to SRS accounts are voluntary and are eligible for a dollar-for-dollar tax relief. The annual SRS contribution cap is currently set at $15,300 for Singapore citizens and permanent residents, and $35,700 for foreigners.
An individual with a taxable income of $60,000 will save about $1,070 in his income tax when he contributes $15,300. This saving in tax is immediate. Contributions to the SRS account can then be used for investing and can subsequently be withdrawn once you reach the statutory retirement age of 62. Taxes on withdrawals are granted a 50% concession.
#5 Upgrade Yourself By Signing-Up For A Course
If you are currently working, IRAS grants reliefs for costs incurred at approved educational institutions, such as examination fees, course fees and tuition fees. You may claim up to $5,500 in Course Fee Relief per annum.
Whether it is attending short professional/vocational courses or a full-fledged diploma, degree or Master’s programme part-time, tax reliefs are one more good reason for you not to delay signing-up to upgrade yourself.
#6 Deductions On Rental Expenses
If you have a property that you’re renting out for income, you can claim costs that you incur from renting it out. These include interest on your mortgage, fire insurance premiums, as well as repairs and maintenance costs that you pay out of pocket.
If there is any furniture that requires replacement, peeling paint on walls or other works that you’ve been procrastinating on, completing them before the year is over might not be a bad way to usher in the new year.
#7 Deductions On Work From Home Expenses
Additionally, the prevalence of Work-From-Home (WFH) arrangement may mean that you are eligible to claim WFH expenses. These expenses cannot be already reimbursed by your company.
You can claim electricity charges and telecommunication charges against your employment income (if you have been working from home. Only additional charges for your electricity and telecommunication charges can be claimed against your employment income. You have to compare their bills before and after your work-from-home arrangements. If there are more than one person working from home within the household, the increase in charges can be shared equally.
Note that if you stay in a HDB flat and received U-Save rebates for their utilities, you must also deduct a proportionate amount for their electricity charges. In addition, the government also gave out a one-off $100 utilities credit, which should also be deducted proportionately for the month’s electricity bill.
Expenses that are capital in nature also cannot be claimed. This means setting-up cost of a better home fibre broadband or purchases an office chair and/or desk are not claimable.
#8 Life Insurance Relief
As individuals, we can also claim for Life Insurance Relief if our total CPF contribution for the compulsory employee’s CPF contributions and compulsory Medisave / voluntary CPF contribution as a self-employed individual, was less than $5,000 in the year preceding the YA. This $5,000 limit does not include the voluntary cash contribution to your Medisave account for YA 2023 onwards.
We can claim for Life Insurance Relief for the lower of:
- the difference between $5,000 and your CPF contribution;
- up to 7% of the insured value of your own/your wife’s life, or the amount of insurance premiums paid.
The insurance premiums on your own life insurance policy (and on your wife’s life insurance policy for married men) must be paid by yourself.
Act Now, Don’t Procrastinate
Some of the ways we shared have to be executed before the end of the year for you to earn tax savings. Others can be claimed as long as you keep supporting proof of the costs you incurred. Either way, take action today and welcome the new year with peace of mind.
Know someone who will benefit from optimising their personal income taxes? Do share this article with them! It’s the season of sharing and giving, after all. Have a great end of year!
This article was first published on 17 December 2018 and updated for YA2022. Additional reporting by Angela Koo.
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