How to be Tax Savvy

Being tax savvy is an essential part of adult life. In fact, understanding how to properly file for tax and having a good tax strategy in place can directly impact your total disposable income.

As professional tax experts, here is a brief overview of the dos and don’ts for tax season. That said, different taxpayers have different situations that can impact their tax obligations, so don’t hesitate to contact us for a consultation with one of our tax experts.

A Snapshot of Tax Changes applicable for 2016

 In Singapore’s Jubilee year, there was much to celebrate. Tax-wise, Singapore’s Finance Minister announced a few key changes to our tax system, which included:

• An increase in the personal income tax rate from 20% to 22% (to take effect from 2017)
• An immediate one-off 50% tax rate, capped at S$1,000, for the year of assessment (YA) 2015
• Simplified claim for rental expenses
• Tax deductions for up to 300% for qualifying donations made to approved Institutions of Public Character (“IPC”) from 1 January 2015 to 31 December 2015
• Extension and enhancement of Angel Investors Tax Deduction Scheme
• Raising of CPF salary ceiling
• Increase in Supplementary Retirement Scheme (SRS) contribution cap

The increase in personal income tax rate only impacts those whose annual incomes are S$200,000 and above. Here’s a side-by-side comparison of the old personal income tax rate and the new one, which will take effect from 2017.

Depending on your tax situation, you may need to make adjustments to your current tax strategy to make the most of these changes, as most of these do lighten the tax burden.

Taking for example, SRS contributions. The SRS is one of the schemes put in place by the government to encourage people to save for their retirement; and complements the CPF. For the tax savvy, using the SRS effectively can significantly increase one’s savings, as not only are contributions to SRS tax-exempt, all investment returns earned through the SRS account are tax-free. In addition, upon withdrawal, there will be a 50% tax concession.

Perhaps because of the word “retirement” in the SRS, some taxpayers mistakenly assume that only retirees or the elderly can begin using it. However, the SRS is in fact open to any Singapore Citizen, Permanent Residents (“PRs”) or even foreignors over the age of 18, who is not an undischarged bankrupt or suffering from any mental disorders. Once your SRS account is opened with any one of the three local banks (DBS, OCBC and UOB), you or your employer can begin making contributions to the SRS account, up to a maximum of S$15,300 per year for Singaporeans and PRs; and S$35,700 for foreignors.

No Filing Service (“NFS”) doesn’t mean tax-free

For some of us, we’ve been lucky enough to receive the NFS letter of notification from IRAS, which means that IRAS will compute your tax for you based on the information at their disposal.

While this can be very convenient, it is still essential to take the initiative to review your finances and expenditure to ensure that the amount you are being taxed on is appropriate and accurately reflects your financial situation. For example, some forget to take into consideration that over the past year, some family members who were previously working have now become their dependents.

One key group of taxpayers who may be overstating their tax obligations are the frequent flyers, particularly those who stay for long periods overseas to carry out their work. IRAS has a scheme known as the NOR (Not Ordinarily Resident) Scheme, whereby qualifying taxpayers would only be taxed on the portion of their Singapore employment income that corresponds to the number of days that they have spent in Singapore, i.e. if I only spend three months out of a year in Singapore, I would only have to pay tax for the income earned in that period.

Claiming Deductible Expenses and Reliefs

Having acknowledged that there are some occupations where it is inevitable that the employee forks out his or her own cash in the course of business, IRAS does allow for individuals to claim employment expenses, which have not been reimbursed by the employer. This can come in the form of transport fares, entertainment expenses, or any other miscellaneous expenses that are deemed necessary for your job. However, do note that IRAS does random spot checks and would require you to retain such receipts for at least five years. For those in certain lines of work, such as insurance agents, real estate agents, bankers and entrepreneurs, this is one of the essential tax reliefs to take note of.

Another deductible expense would be rental property expenses. This would include mortgage interest, fire insurance, maintenance fees, general repairs and maintenance costs incurred during the period of tenancy. Particularly for homeowners renting out a condominium or landed property, such costs can be significant. This can offset the taxes that one would pay for rental income.

Besides these two key deductible expenses, there are also many tax reliefs that can significantly reduce your taxable income. Some, such as the Parenthood Tax Rebate, can even been shared between a married couple. For such rebates, do a complete review of all the reliefs and rebates that the both of you qualify for, before deciding how to apportion the rebate to your best benefit. We list out the various tax reliefs and rebates below:

• Earned Income Relief
• Employment Expenses Relief
• Spouse / Handicapped Spouse Relief
• Qualifying / Handicapped Child Relief
• Course Fees Relief
• Parent / Handicapped Child Relief
• Life Insurance Relief
• Foreign Maid Levy Relief
• SRS Relief (only when a contribution has been made in the previous year)
• CPF relief
• NSman (self/parent) relief
• Parenthood tax rebate
• Grandparent caregiver relief
• Working mother’s child relief
• Deductions on donations
• Deductions on the Angle Investors Tax Deduction Scheme

In addition, as a country that highly encourages the spirit of entrepreneurship to flourish in Singapore, there are various tax reliefs that sole-proprietors, self-employed individuals and partners in partnerships can claim, such as:

• Business expenses
• Productivity and Innovation Credit (“PIC”)
• Capital Expenditure incurred on renovation or refurbishment works
• Capital allowances on fixed assets
• Medical expenses
• R&D expenditure
• Land Intensification Allowance
• Expenses incurred before commencement of business
• Business making losses and unabsorbed capital allowances

Business expenses in particular, are one key expense that can significantly reduce one’s taxable income, provided they meet the following criteria:

• Expenses has already been incurred
• Expense is related to the business
• Expenses are supported by proper documents to substantiate your claims

Similar to employment expenses, IRAS will require you to retain receipts and proof of such claims for at least five years. Expenses that would fall under this category include accountancy fees (though recent changes in the Companies Act now allow more small companies to be exempt), advertising costs, business licence renewal fee, employee costs such as CPF contributions, medical expenses and insurance. Indeed, when all these expenses have been taken into account, it can translate to significantly substantial amounts for the business owner.

If this list seems overwhelming to you, do consult a professional tax agent, who would be able to review your entire portfolio and financial situation before providing you with a detailed walkthrough on how you can best manage and represent your tax obligations.