8 Simple Ways to Reduce Your Personal Tax Bill
- Posted by admin
- 31 March 2016
As tax season approaches, it’s time to start looking at ways to lower your personal tax bill. Now is also a good time to learn more about recent tax changes, so you can start taking steps to lower next year’s tax bill.
There are numerous ways to lower your income tax burden. Eight of the simplest methods include:
1. Claim All Appropriate Tax Reliefs
The most effective ways to reduce your tax bill is to claim all appropriate tax reliefs and rebates.
Several reliefs and rebates are available to all Singaporean taxpayers, including:
- Parent/handicapped parent relief
- Life insurance relief
- Course fees relief
- Earned income relief
- Handicapped brother/sister relief
- NSman (parent/self) relief
- SRS relief
Other deductions are available for self-employed individuals and partners.
2. Factor in Tax Losses
If you run a trade or businesses and incurred tax losses over the last tax year, do not forget to include these losses when calculating your tax bill.
Any losses from your business and unabsorbed capital allowances can offset your income, effectively lowering your tax burden. Income may include general business income, employment, interest income and rent.
3. Claim Business Expenses
Sole proprietors and partners can claim business expenses to offset business income and lower their tax bills.
Some expenses may qualify you for a tax deduction. Claiming these deductions on your tax return will lower your taxable income.
Deductions for self-employed individuals and partners include:
- R&D Expenditure
- Business Expenses
- Capital Allowances
- PIC (Productivity and Innovation Credit)
- Medical expenses
- S14Q – R&R cost
- Any expenses you incurred before your business opened its doors
- Land Intensification Allowance
Each of these deductions has its own qualifications that must be met before they can be claimed. The Inland Revenue Authority of Singapore provides more information on these qualifications on their website.
4. Don’t Forget Rental Expenses
Rental expenses may also be claimed if you let out residential properties. Much like business expenses, rental expenses offset the income you derive, which lowers your tax bill.
Common deductible expenses include:
- Repairs to restore the property during the rental period. Keep in mind that repairs performed outside of the rental period or to improve the property do not qualify as a deduction.
- Housing loan interest.
- Property tax.
- Fire insurance premiums.
- The cost of attaining new tenants (e.g. agent commission, legal expenses and advertising).
5. Know When to Choose Cash Allowance or Benefits-in-Kind/Reimbursements
As an employee, you may receive car, clothing or housing benefits, which are often referred to as benefits-in-kind. Your employer may provide residence or a cash allowance to attain such promised benefits.
These benefits-in-kind or cash allowances will have an effect on your taxes. There are two key areas in which it’s important to know how each will affect your tax bill: residence and car.
If your employer provides residence, your taxes will be affected in the following ways:
- Cash allowance amounts are taxable in full
- Benefits-in-kind are taxed based on the Property’s annual value minus the amount of rent paid by you, the employee.
If the total cash allowance is lower than the property’s annual value, it may be more beneficial from a tax standpoint to choose the allowance over the benefits-in-kind.
If your employer offers a cash allowance or reimbursements for your vehicle expenses, this will affect your tax bill as well.
Oftentimes, it’s best to go the reimbursement route if you are given the option. Reimbursements for mileage, ERP and carpark for work purposes are exempt from taxation. Cash allowances, on the other hand, are taxable in full.
6. Don’t Forget Donation Deductions
You may also claim tax deductions of 2.5-3 times the amount of donations you make, including:
- Public Art Tax Incentive Scheme
- Land and Building
If you made a generous donation of $1,000, you would receive a $2,500 tax deduction to lower your tax bill.
7. Boost Your SRS Contribution
Singaporean tax residents can claim reliefs on SRS contributions. New tax laws raised the SRS contribution cap to $15,300 from $12,750.
Boosting your SRS contribution will lower your tax bill.
Before you increase your contributions, make sure that you fully understand how this scheme works and will affect your retirement savings.
8. Take Advantage of CPF Cash Top-Up Relief
Singaporean citizens and PRs can take advantage of the CPF cash top-up relief to lower their tax bills. The maximum relief available is $14,000, with $7,000 in individual CPF accounts and $7,000 in qualifying family member accounts.
While this relief can be beneficial, it is important to remember that only cash top-ups are acceptable. Transferred funds from your own or other CPF accounts are excluded.
Use these 8 simple tips to reduce your tax bill this season, and start taking steps to lower next year’s bill as well. Other tax savings do exist, so be sure to speak with your advisor to maximize your savings.