Getting started on your tax planning before the New Year begins can help you maximize tax relief and minimize tax payable next year.
You may only count your tax relief in April when you declare your income tax. But there are 3 things you must do before the year winds down for more tax relief.
#1. Contribute SRS for Tax relief and more
The Supplementary Retirement Scheme (SRS) is a voluntary scheme that incentivizes 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 just a tax relief scheme. You can invest your SRS balance to fund your retirement as well.
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 should read this article for more information about:
- What is SRS and what are the benefits of SRS contribution
- How to make SRS contribution
- How to make SRS withdrawal
#2. 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 since 2016. This means that you can still make more voluntary contribution to your Medisave account for tax relief.
How much voluntary Medisave contribution can you claim for tax relief
The amount of tax relief is given to the lowest of the following:
- Voluntary cash contribution directed specifically to Medisave Account or
- Annual CPF contribution cap for the year, less Mandatory Contribution (MC) or
- Prevailing Basic Healthcare Sum(BHS), less the balance in Medisave Account before the voluntary cash contribution.
Mandatory Contribution (MC) refers to compulsory contribution by you and your employer, and compulsory Medisave Account for self-employed individuals.
#3. Top up CPF special or retirement account for yourself and your family
This is, in fact, a less known scheme. This relief is given to encourage Singaporeans and Permanent Residents to set aside money for retirement needs either in their own CPF accounts or those of family members.
Under the CPF Retirement Sum Scheme, you can obtain tax relief for your cash contribution to
- Your Special Account (if you are below age 55) or
- Retirement Account (if you are age 55 and above).
You can also top up 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 CPF cash top-up can you apply for tax relief
The maximum CPF Cash Top-up relief per Year of Assessment (YA) 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||$12,000 ($5,000 + $7,000)|
In the above example, you can claim a total CPF Cash-Top Relief of $12,000 for this year.
Please also note that there is a personal income tax relief cap of $80,000, which will apply from the Year of Assessment (YA) 2018 onwards. This cap applies to the total amount of all tax reliefs claimed, including any relief on cash top-ups made on or after 1 Jan 2017.
There will be no refund for accepted cash top-up monies. As such, you must take note of the overall personal income tax relief cap when evaluating whether you would benefit from tax relief on your cash top-ups, and make an informed decision accordingly.
#4. Spend on education and course and gain tax relief
Many people overlooked this when they file tax relief.
Course Fees Relief is given to encourage individuals to continuously upgrade their skills and enhance employability. It is targeted at those who are currently employed or who have been employed previously. Vacation jobs or internships are not considered employment for the purpose of this relief.
You can claim relief for the next year’s tax on the course fees paid this year for if the course, seminar or conference meets one of the following 3 criteria:
1. It leads to
- An approved academic, professional qualification – the course, seminar or conference should lead to a recognised academic and professional qualification. Or
- A vocation qualification – the acquired skill or knowledge should be one that can be applied in a vocation or a specific area in an industry; and the course, seminar or conference provider is a Singapore registered entity with the Accounting & Corporate Regulatory Authority (ACRA)
2. It is relevant to your current employment, trade, business, profession or vocation; or
3. It is relevant to your new employment, trade, business, profession or vocation
You can claim the actual course fees incurred by yourself up to a maximum of $5,500 each year regardless of the number of courses, seminars or conferences you have attended.
You can claim only the portion of the course fees which you paid. Any amount paid or reimbursed by your employer or any other organisation cannot be claimed.
You may claim the following types of fees:
- Aptitude test fees (for computer courses);
- Examination fees;
- Registration or enrolment fees; and/or
- Tuition fees.
Please note the following courses are not eligible for relief:
- Courses, seminars or conferences for recreational or leisure purposes;
- Courses, seminars and conferences for general skills or knowledge (e.g. Internet surfing course, social media skills, basic website building skills and Microsoft Office skills); and
- Courses, seminars and conferences to acquire skills or knowledge for a hobby instead of your profession (e.g. photography, language and sports courses).
- Polytechnic/University courses if graduates have never exercised any employment or carried on any trade, profession or vocation previously.
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 ^_^).
In addition, it may be too late to plan for attending courses to upgrade yourself.
Do you have any question about tax relief contributions? What are other tax relief tips you use for yourself? Simply leave your comment below.
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