How to minimize personal income tax as an individual and a business owner? 

Legal obligation for personal income tax in Singapore

In Singapore, Inland Revenue Authority of Singapore (IRAS) is a Singapore Government agent providing administration of Singapore income tax, including personal income tax. All employed individuals must pay taxes based on their chargeable income, which is income earned after deducting allowable expenses and reliefs. The amount of tax payable depends on the individual’s tax rate, which is progressive, meaning that higher earners pay a higher percentage of tax.

In this article we explore some tax reliefs and tax deductions for sole proprietors, landlords, individual tax residents in Singapore. Be sure to discuss with your accountant or tax advisor if you have a doubt.

• Deductibles from Business Operations (Self-employed, sole proprietors and partners)

As a business owner, you can deduct a range of expenses incurred from running your business operations. These include advertising fees, accounting services, legal costs, staff salaries, rental fees for office space or equipment, and business travel expenses. The amount you can claim as deductions will depend on the type of qualifying expenses, records, and type of business you run. 

• Rental Expenses Deductions (Residential property owner) 

If you are renting out a property, you may claim the expenses incurred or an amount of deemed expenses against your rental income from renting out a residential property in Singapore under applicable conditions.

Those eligible expenses can include fees paid to real estate agents, building upkeep and repairs, property insurance premiums, and other incidental expenses incurred to generate rental income during the year.  

The allowable deemed rental expenses allowable is determined based on 15% of the gross rental income derived, in addition to that, mortgage interest on the loan taken to purchase the tenanted property can be claimed. 

• Tax Relief on Donations

There are two types of donations that offer tax relief in Singapore: cash donations and approved shares or securities. If you want to make a donation that is eligible for tax relief, you can donate to registered charities classified as Institutions of Public Character (IPC) by the Singapore government. You can claim tax deductions of up to 250% on your donation, regardless of whether it is cash or another form.

• Life Insurance Relief

If you have paid life insurance policy premiums, you might be qualified to claim this tax relief under certain conditions. There is one condition for claiming this lower rate, and that is if your employee’s CPF contributions are under S$5,000. It’s a great way to reduce your taxable income.

• CPF Retirement Top Ups

One of the best ways to reduce your taxes is by supplementing CPF funds, either yours or a loved one’s. With this method, your tax relief is limited to S$16,000 annually – $8,000 for you and an additional $8,000 if you’re making contributions for others. Not only can employers make cash top-ups on their employees’ behalf, but they will also get equivalent tax relief. This is beneficial for both the employer and the employee.

• Parent/Handicapped Relief

The government understands how much it costs to take care of the elderly, and you may be able to receive a tax break if you are caring for your parents. A dependent can also be a grandparent, parent-in-law, or grandparent-in-law as long as they don’t earn more than S$4k annually.

• NSMen Relief

The Singapore government provides a tax relief called the NSMan relief to those who have served in the Singapore Armed Forces during the previous year. Those who are classified as Key Appointment Holders receive greater tax relief, from S$3,500 to S$5,000. Non-KAHs still receive up to $3,000 in tax breaks. Furthermore, both spouses and parents of eligible NSMen will be given S$750 in tax reliefs for that respective assessment year.

• Contribute to your SRS Contribution

Supplementary Retirement Scheme (SRS) is a voluntary scheme to complement the Central Provident Fund (CPF) where you can contribute maximum a sum of 15% of your annual salary ceiling if you are a Singapore Citizens / SPRs and up to 35% of your annual salary ceiling for foreigners. This contribution can be withdrawn after you reach your statutory retirement age (prevailing when you made your first SRS contribution) or earlier for medical reasons. Any contribution made to SRS provides tax relief provided it is within the maximum limit for the year. 

• Course Fees Relief

Investing in your future by taking a course related to your profession is also an excellent way to effectively decrease your income tax. The government’s belief is that this relief will incentivize citizens to learn new skills and, as a result, obtain improved employment options.

• Earned Income Relief

Earned Income Relief is available to tax resident in Singapore person who garnered an income through a job, pension, trade, business, or occupation. The relief you receive, will depend on both your age and taxable income you earned in the preceding year. If you are eligible, you will automatically receive a tax deduction on your earned income-you don’t need to file a claim.

Conclusion : 

Start Planning Your Personal Income Tax Today

As a tax resident in Singapore, you can utilize personal tax reliefs and allowable personal tax expenses to minimize your personal income tax. By carefully considering your source of income and exercise tax planning properly with your tax advisor in Singapore, you may have saved more and avoid mistake in filing your personal income tax.   

However, it is important to remember that tax laws are constantly changing, so it is always best to seek professional advice before implementing any tax minimization strategies. To understand more on how you can start planning your personal income tax and corporate tax, speak to us today.