Getting started on your tax planning before the New Year begins can help you maximize tax relief and minimize tax payable next year.
Many people only look into tax relief in April when they need to declare their income tax. But there are 3 things you must do now before the year winds down if you want to obtain more tax relief.
Contribute SRS for Tax relief and more
The Supplementary Retirement Scheme (SRS) is a voluntary scheme that incentivises individuals to save for retirement by way of tax-deductible contributions.
Singapore citizens and permanent residents can get tax relief up to $15,300, while foreign individuals can put in $35,700.
You need an SRS account to make the contribution. If you have not done so, you can open an account with one of the 3 local banks, i.e. DBS, UOB and OCBC.
I always advocate making SRS contribution at the beginning of the year instead of year-end. This is because SRS is not only a tax relief scheme. Many people are not even aware that they can invest their balance in SRS.
Based on statistics from the Ministry of Finance below, around 30% of Singaporeans’ SRS balances are idling as cash.
Nevertheless, if you haven’t contributed your SRS, you definitely want to act now. Click here to find out more about how to invest your SRS funds for retirement.
This article will give you more information about:
- What is SRS and what are the benefits of SRS contribution
- How to make SRS contribution
- How to make SRS withdrawal
Max out CPF Medisave contribution for more tax relief
You know that CPF contribution is tax deductible, but do you know that you may not fully utilize your CPF contribution limit?
Whether you are employees and self-employed persons, you can make tax-deductible voluntary contributions to your CPF Medisave account if your compulsory CPF contributions have not reached the annual CPF contribution cap.
For example, if your monthly salary is $6,000 and the annual bonus is $18,000, your total compulsory contributions at the combined employee and employer rate of 36% would be $28,080.
The annual CPF annual contribution limit has been revised to $37,740 from 2016. This means that you can still make more voluntary contribution to your Medisave account for tax relief.
Top up CPF special or retirement account for yourself and your family
This is, in fact, a less known scheme.
Under the CPF Retirement Sum Scheme, you can obtain a tax relief for your cash contribution to
- Your Special Account (for recipients below age 55) or Retirement Account (for recipients age 55 and above).
- CPF Special/Retirement Account of your family members who have basic retirement needs
Family members include:
- Parents or Parents-in-law;
- Grandparents or Grandparents-in-law;
- Spouse; and/or
To claim tax relief for cash top-ups for your spouse or siblings, the spouse or siblings must not have an annual income exceeding $4,000 in the year preceding the year of top-up.
How much cash top-up can you apply for tax relief
The maximum CPF Cash Top-up relief is $14,000 (maximum $7,000 for self and maximum $7,000 for family members).
For example, if by end of this year, you topped up $5,000 in cash to your own CPF Special Account and you topped up $10,000 in cash to your mother’s CPF Retirement Account.
|Top-up Amount to own CPF Special Account||$5,000|
|Top-up Amount to Mother’s CPF Retirement Account||$10,000|
|CPF Cash Top-up Relief (own account)||$5,000|
|CPF Cash Top-up Relief (mother’s account)||$7,000|
|Total CPF Cash Top-up Relief for YA 2015||$12,000 ($5,000 + $7,000)|
For Year of Assessment 2016, you can claim a total CPF Cash-Top Relief of $12,000.
Remember to act early
In the course of my work, I realize that many people do want to take advantage of these various tax relief schemes. However, many tend to procrastinate this because tax relief contributions seem to be a “year-end” thing.
In reality, during the festive season like now, everybody is busy celebrating and travelling. As a result, you either find no time or forget to make the contribution. If you make a last-minute contribution on the last couple of days of the year, it may be counted as next year’s tax relief due to delay in transactions (I speak from personal experience ^_^).
Have you made your tax relief contributions? What are other tax relief tips you use for yourself? Do share with us by leaving the comment below.
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