While Singapore has one of the lowest personal income tax rates in the world, income tax can still be a significant expense for the middle and high-income earners.
Many of them are considering using Supplementary Retirement Scheme (SRS) contributions or CPF top-ups to increase their personal relief, and consequently lower their taxable income. A key concern is that their existing tax reliefs may already exceed the personal income tax relief cap of $80,000, and make any additional relief contribution efforts pointless.
In this article, you will get to understand how to estimate, or precisely calculate your current tax relief through IRAS submissions, so that you can make an informed decision around discretionary relief contributions, such as SRS contributions and CPF top-ups.
How to estimate your personal tax reliefs
Retrieving your previous income tax statement
The quick and easy way to estimate your current tax relief is to use your previous tax filing as a proxy to this year's tax.
You can log in to myTax portal at IRAS with Singpass. Under Notices/Letters, you will be able to access your previous income tax statement, known as the Notice of Assessment (NOA).
After you have downloaded your previous income tax statement/ NOA, look at your Total Personal Reliefs last year. This will form the basis of your tax relief estimate.
Adjusting for changes in your tax relief
Your tax benefits and deductions may change from your previous tax filing. The most common reasons are as follows:
- Increase in employee contributions of CPF, due to an increase in salary or bonus
- Being a parent makes you eligible for Qualifying Child Relief and Working Mother Child Relief
- Having more dependents, which would qualify you for relief such as the Parent/Grandparent relief or Handicapped Brother/Sister relief
Add or subtract any changes to these tax reliefs, and you will have a fairly reflective estimate of your current tax benefits.
Manually calculating your personal tax relief and deductions
To be more precise and accurate with your tax optimisation efforts, you should:
- Manually identify the different relief schemes that you are entitled to;
- Find out how much you are getting from the tax reliefs;
- Sum up all the reliefs you are getting.
The following are the key types of reliefs that are part of our entitlement.
Compulsory CPF Contribution related Tax-relief
We are exempted from paying taxes for any compulsory CPF contribution that we make as employees. For example, a fresh graduate with a base salary of $3,000 and an annual income of $36,000 will have a tax relief of $7,200 for his CPF contributions.
Note that there is an Ordinary Wage Ceiling cap for CPF contribution at $6,000 of your monthly salary.
CPF tax relief is also extended to contributions from your annual bonus and leave pay. The additional Wage ceiling cap for CPF contribution is calculated based on the below formula:
The maximum tax relief that you can get from compulsory CPF contributions is 20% of $102,000 or $20,400 if you are under 55 years old. More examples of how Additional Wage Ceiling CPF contributions can be found on the CPF website,
Child tax relief as a parent
With additional childcare-related expenses, lower tax expenses is definitely a relief for many working parents. Additional tax benefits are also given to working mothers.
The tax relief amount for the two different schemes, Qualifying/Handicapped Child Relief and Working Mother Child Relief as follows:
Dependents tax reliefs
Having a spouse, parent, or grandparent that is under our care also allows us to be entitled to tax reliefs. You may even get Grandparent Caregiver Relief if your parent/grandparent is taking care of your child. The different schemes and the tax reliefs are tabulated below:
Note that there are various criteria that you should take note of before you assume that you are entitled to the relief.
For example, under the Parent Relief, your parent/grandparent cannot have made an annual income of more than $4,000. Similarly, to quality for Spouse Relief, your spouse should not make an annual income of more than $4,000. It is important to refer to the relevant IRAS page for more information. Read more about the Handicapped Brother/Sister Relief here.
Other miscellaneous tax reliefs
You should also include the other key miscellaneous tax reliefs, or refer to IRAS for more information.
Discretionary tax relief through CPF and SRS top-ups
Beyond the tax reliefs that were listed previously, you can also do voluntary CPF and SRS top-ups. These tax reliefs encourage Singapore tax residents to save up for retirement.
Generally, topping up these accounts will give you a dollar-for-dollar income tax reduction, but your money will be locked up till retirement age for SRS or till 55 for CPF.
You can learn more about the details of the pros and cons of CPF and SRS top-ups here.
Personal income tax relief cap and using donations for tax reductions
After you have identified the different tax reliefs that you are entitled to and summed up all the tax benefits you are getting, you will know the Total Personal Relief that you can get. As there is a maximum tax relief of $80,000, if you have $75,000 worth of Total Personal Relief before SRS contributions or CPF top-ups, you can only get $5,000 from SRS tax reliefs or CPF top-ups.
Beyond that, you should also consider what tax bracket you are in after all the tax relief programmes you are entitled to. A young working mother who earned $100,000 last year may find SRS contributions last year worth it without a child, as she was in the 11.5% tax bracket. However, with the associated tax relief as a parent, she may find the tax savings at the 7% tax bracket less efficient when weighing the opportunity cost of liquidity.
Separately, if you are looking at making donations to reduce your taxable income, you might be pleasantly surprised to know that qualifying donations to any Institute of Public Character (IPCs) will enjoy tax deductions of 250% of the donations made. These donations are considered as tax deductions, which means they are not capped at the tax relief cap of $80,000.
The tax deduction is given for donations made in the preceding year. For example, if you made a donation in 2022, tax deduction will be allowed in your tax assessment for the Year of Assessment (YA) 2023.
You can make an online donation to the 22 beneficiaries listed on Endowus Gives Back, and the donation amount will be automatically reflected in your tax assessments
The Singapore tax relief system may be complicated, but the benefits of it can be identified and quantified. With a bit of effort and time, you can make tax savings a benefit that you enjoy throughout your working life.
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