How to Lower Your Income Tax: Reliefs and Deductions

Tax season is here! Are you all geared up for it?

For some, it can be a stressful time filled with anxiety and confusion; for others, it’s a time of reflection and planning for the future.

Regardless, it’s important to understand the ins and outs of our tax system, including the different types of taxes, tax reliefs and deductions.

What are the latest tax rates?
What are the tax reliefs you can apply for now?
What are the tax treatments for property rental income?

In this article, we’ll take a closer look at everything you need to know to make it through the season with ease.

What are the current personal income tax rates:

The tax rates in Singapore are progressive, which means that the tax rates increase as the income level of an individual increases. In other words, individuals with higher incomes are taxed at a higher rate compared to those with lower incomes. This progressive tax system can help ensure that the tax burden is distributed more fairly across different income groups.

The tax rates for individuals in Singapore range from 0% to 22%, with higher rates applied to higher income brackets.

For example, for the year 2022, the tax rate for individuals with an income of up to S$20,000 is 0%, while those earning over S$320,000 are taxed at a rate of 22%.

Take a look at the chart below for the personal income tax rates for residents:

As you can see, for income $20,000 and below, your income tax rate is 0%.

As you progress through the income brackets, your income tax rates increase.

For example, if your chargeable income is $100,000, your marginal tax rate is 11.5% for the income on top of $80,000. Your tax payable is $3,350 + 11.5% x $(100,000 – 80,000) = $5,650.

Let’s talk about income tax reliefs

Now comes our favourite part – tax reliefs.

If you are a middle- to high-income earner, you’ll feel that income tax is a significant pain. Of course, there are ways to lower your taxable income, and that is tax relief.

While it is a key concern that there’s a personal income tax relief cap of $80,000, which makes any additional relief contribution efforts pointless, let’s explore what are the things you must know about income tax reliefs.

Contribute to the Supplementary Retirement Scheme (SRS) to save for retirement by way of tax-deductible contributions.
Max out CPF Medisave contributions to receive tax relief, even if you have already reached the annual CPF contribution cap.
You can also obtain tax relief for your cash contribution by topping up your Special Account (if you are below age 55) or Retirement Account (if you are age 55 and above) of family members.
Additionally, there is a course fee relief given to encourage individuals to upgrade their skills and enhance employability, which can gain tax relief.

If you hop over to the IRAS website, you will be able to see even more ways to obtain tax reliefs and deductions, such as the Parenthood Tax Rebate and deductions on donations. Let’s take a look at the other reliefs and deductions available:

Tax savings for married couples and families
Personal tax rebates
Deductions on rental expenses
Deductions for self-employed partnership, trade, business, profession or vocation
Deductions for employees

Income tax treatment for property rental income:

In Singapore, property rental income is treated as taxable income and is subject to tax.

There are 2 types of taxes associated with properties.

Property tax
Income tax on rental income

If you are a property owner, you need to pay property tax, which I discussed in an earlier article. But if you rent out your property, you are subjected to income tax on rental income.

But fear not, you can apply for Rental Income Relief to save tax.

Certain expenses can be allowed as tax deductible. If you are not aware of all these reliefs, you may end up paying more income tax than necessary. Here’s a summary:

Type of expense	Allowable expenses	Non-allowable expenses
Housing loans	Interest paid on the loan or mortgage taken to purchase the property that is rented out.	Repayments of the principal loan or mortgage amount (monthly instalments).
Property tax	Incurred during the rental period (e.g. property tax paid for year 2021, on property rented out in 2021).*	Penalty imposed for late payment or non-payment of property tax. Balance brought forward from previous year’s property tax.
Fire insurance	Premiums paid on fire insurance.	Capital sum assured on property.
Repairs	Repairs done during the rental period to restore the property to its original state.	Cost of initial repairs. Repairs done which result in improvement/additions and alterations.
Maintenance	Cost of maintaining the property (e.g. painting, pest control, monthly maintenance charges.	Cost of renovation, additions, alterations to the property (e.g. extension of car porch, construction of drains, cementing of walls and floors, installation of window grilles).
Costs of securing tenant	Agent’s commission, advertising, legal expenses and stamp duties related to obtaining, granting, renewing or extending a lease are allowed as tax deductions. No deduction is allowed for leases exceeding 3 years (excluding any option for renewal or extension), leases acquired through business acquisition, sale, transfer, or restructuring, and leaseback arrangements where the property is sold and leased back to the seller.
Costs of supervision or management fees	Costs in engaging a third party to carry out activities such as ensuring rentals are paid promptly, maintenance and upkeep of the properties and attending to tenants queries and complaints.* Where the management fees is paid to a related party (e.g. relatives or own company), owners need to justify that the amount paid is at market rate and commensurate with the services rendered.
Furniture and fittings	Replacements of furnishings (e.g. furniture, fixtures, electrical appliances) to its original state.	Depreciation of furnishings (e.g. furniture, fixtures, electrical appliances). New improvements/additions made to furnishings (e.g. furniture, fixtures, electrical appliances).
Internet charges/expenses	Paid on behalf of tenant (i.e. not reimbursed by tenant).	Paid on behalf of tenant and reimbursed by tenant subsequently.
Utility expenses	Paid on behalf of tenant (i.e. not reimbursed by tenant).	Paid on behalf of tenant and reimbursed by tenant subsequently.

Source: IRAS

How to pay your taxes

GIRO
PayNow QR
AXS
Internet Banking Bill Payment
Internet Banking Fund Transfer
Telegraphic Transfer
SingPost

Personally, I would encourage you to opt for GIRO payments. Not only will you be able to avoid the late payment fee if you miss the tax filing deadline, but making a monthly payment for your taxes instead of doing it annually also means that you have more cash flow on hand.

It’s as if it’s a 12-month interest-free instalment!

To summarise…

By understanding the income tax system, you can save tax and better manage your cash flow.

Reliefs are like free money, so you should definitely pay attention to them!

If you have any questions, feel free to leave a comment below.

For more personal finance tips, follow my Telegram Channel for more!

About the Author

Ivan Guan is the author of the popular book "FIRE Your Retirement". He is an independent financial adviser with more than a decade of knowledge and experience in providing financial advisory services to both individuals and businesses. He specializes in investment planning and portfolio management for early retirement. His blog provides practical financial tips, strategies and resources to help people achieve financial freedom. Follow his Telegram Channel to join the FIRE community.
The views and opinions expressed in this article are those of the author. This does not reflect the official position of any agency, organization, employer or company. Refer to full disclaimers here.

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