Why I stress that working Singaporeans should maximise their tax reliefs

All working adults are assessed on their income earned. After taking into account tax reliefs and rebates, a good 74% pay taxes on their income. As mentioned in my earlier article on avoiding paying too much taxes, many people still 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.

Generally, the Government provides various tax reliefs and rebates to promote certain social objectives, such as encouraging marriage and family formation, recognition for taxpayers who support their dependants, and saving for retirement. Over the years, new reliefs have been introduced and enhanced significantly. Today, there are 15 tax reliefs, each serving an objective. When taken together, the reliefs can unduly reduce the taxable income.

Do you understand why sometimes you pay lower taxes one year, and much higher tax on another even though your salary had not increased by much? One of the reasons why is that Personal Tax rebate may differ from year to year. I shall reiterate here:

Net Tax you have to pay = Tax you should have paid – Tax Rebate

Net Tax you have to pay = $1,500 – $200 (for YA 2019) = $1,300 for example

Ever since the collapse of Lehman Brothers in 2008, the government has been dishing out Personal Tax rebate in alternate years, starting off with a generous max rebate of $2000 for YA 2008, 2009 and 2011.

However, have you noticed a tapering down of the max Personal Tax rebate from $2,000 to $1,500 to $1,000 to $500 to $200 for YA 2019? My guess is that there may not be any more Personal Tax rebate after which till we experience another global crisis, which it remains to be seen.

Fun Fact: Did you know that Dividends from stocks and shares used to be taxable? As of 1 January 2008, shareholders in Singapore are no longer taxed on dividends paid by a Singapore resident company under the one-tier corporate taxation system.

Prior YA 2018, there was no cap on Personal Tax relief. However, YA 2018 saw an introduction of a $80,000 tax relief cap per Year of Assessment. The tax relief cap is “to keep our tax system progressive. Nonetheless, even with the cap, our tax burden remains competitive.” The tax relief cap does not apply to the tax deduction for donation. This deduction is not a personal income tax relief.

Ninety-nine per cent of tax residents can claim their reliefs without being affected by the cap, including 9 out of 10 working mothers who claimed the Working Mothers’ Child Relief. The remaining one per cent of tax residents who are expected to be affected, can still enjoy tax reliefs, up to a cap of $80,000 per year of assessment.

While you can not change how much tax rebate you can receive, you are in control of how much tax reliefs you can enjoy. If you were one of the many working individuals out there, keep a watch for your tax reliefs and avoid paying too much income tax.