Income taxes are a financial burden to working individuals. It is essential is to recognise that there is a way to lessen this burden by maximising the tax reliefs claimable for each assessment year. From Year of Assessment (YA) 2018, the total amount of personal income tax reliefs which you can be allowed is subject to an overall relief cap of $80,000.
Most people generally confuse tax relief with tax rebate. A tax relief is deduction from the total income to derive your chargeable income, whereas tax rebate is deducted from the actual taxed amount.
|Chargeable Income||Gross Tax payable||Chargeable Income||Income Tax rate||Gross Tax payable|
|First $20,000||$0||Next $10,000||2%||$200|
|First $30,000||$200||Next $10,000||3.5%||$350|
|First $40,000||$550||Next $40,000||7%||$2,800|
|First $80,000||$3,350||Next $40,000||11.5%||$4,600|
|First $120,000||$7,950||Next $40,000||15%||$6,000|
|First $160,000||$13,950||Next $40,000||18%||$7,200|
|First $200,000||$21,150||Next $40,000||19%||$7,600|
|First $240,000||$28,750||Next $40,000||19.5%||$7,800|
|First $280,000||$36,550||Next $40,000||20%||$8,000|
|First $320,000||$44,550||Next $40,000||22%||–|
Why is maximising your tax reliefs significant? An individual who earns $320,000 would have to pay $44,550 in income taxes alone. If he manages to maximise the tax reliefs of $80,000, the income taxes is reduced to $28,750 (a saving of 35% in taxes). An individual who earns $120,000 reduces his taxes from $7,950 to $550 with maximum tax reliefs (a savings of 93% in taxes).
Do note that the tax rate increases the higher amount you earn. The whole objective is to move down a lower tax bracket.
The Ministry of Finance (MOF) website does a good job in elaborating the quantum and objectives of each tax relief. I reviewed the tax reliefs that I have claimed for YA 2018 and noted down how I could have done better for next year.
The total tax reliefs was $46,072 (only 58% claimed). Was it good enough? No. Could it have been better? Yes, definitely. How could I have improved it?
|Relief for cash top-up of own CPF Special / Retirement Account||Maximum S$7,000 a year||To encourage Singaporeans to save for their retirement.|
|Relief for Supplementary Retirement Scheme (SRS) contributions||Maximum S$15,300 a year||To encourage Singaporeans to save for their retirement.|
A top-up to both SA and SRS to the max will increase the tax reliefs to $68,372 and essentially bring me down from 7% to 3.5% bracket. This is of course the ideal scenario. However based on current cashflow, I mentioned about being comfortable to commit $100 to SA each month. $1,200 though small, is still a good start.
Looking at some of my other family members, I could tell that there are more ways to reduce their income taxes than what is currently being claimed.
For all working adults, it is good to mark out what claims are eligible to claim for each YA and work on it diligently. You should also find time to do the same for your family members for those who are less savvy on tax matters.