Taxes are essential for nation-building and developing Singapore into a stronger community, a better environment and a more vibrant economy. While it is crucial for the nation to collect more taxes; taxes at the same time is an expense out of the pocket for an individual — reducing the amount of taxes payable through legit means is a key and financially smart move.
We aim to avoid paying too much income taxes by maximise our tax reliefs. There is no change in total tax reliefs amount for Year of Assessment (YA) 2019 — personal income tax reliefs is still subject to an overall relief cap of $80,000.
The main aim is to hit as much tax reliefs as you can under the various categories, as found on the Ministry of Finance (MOF) website. By doing so, you bring down your tax bracket by one, two and sometimes even three tiers.
For example, an individual earning $130,000 annually is in the 15% tax bracket without any tax relief. If she can somehow maximise the tax reliefs of $80,000, her chargeable income becomes $50,000 — she is now in the 7% tax bracket. For $130,000, the gross tax payable is ($7,950 + [$10,000 x 15%]) = $9,450. For chargeable income of $50,000, the gross tax payable is ($550 + [$10,000 x 7%]) = $1,250. A tax savings of ($9,450 – $1,250) = $8,200.
|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%||–|
Hitting the maximum tax reliefs of $80,000 is the most ideal, though this is usually not the case. However, aiming for at least 25% – 50% of tax reliefs should not be that hard to do so.
I wanted to concentrate this discussion on tax reliefs arising from CPF & SRS cash top-ups / contributions.
It is a general rule of life. During your time in the workforce, your earning power gradually increases from the time you step into the world, sometimes taper off or even decreases as you take on less demanding role prior to your retirement. More income means you potentially move into a higher tax bracket and pay more taxes as you grow older.
|For RSTU cash top-up to SA, besides the yearly limit of $7,000 for tax reliefs, there is also the hard cap of FRS amount for SA account.|
|For contribution to SRS, there is only the yearly limit of $15,300 for tax reliefs with no hard cap for SRS account.|
There are 2 camps of thoughts:
- Don’t reach FRS amount in your SA so early in life. Use RSTU cash top-up to your SA for tax reliefs later in life when your income tax bracket is much higher.
- Reach FRS amount in your SA early in life and enjoy the fruits of compounded interests over a longer period of time.
I am in the second camp, and will pen down some of my thoughts on why you need not wait or defer to a higher tax bracket before starting your RSTU cash top-up to SA. We know the cons of RSTU cash top-up to SA, so I am not going to dwell on the one-direction cashflow, its liquidity, risk of policy changes etc.
Many ordinary Singaporeans do not earn a high annual salary of $100,000 and above. The average annual salary in Singapore is $63,312; averaging out $5,276 per month, inclusive of the employer’s CPF contribution. The Median Gross Monthly Income from work (including Employer CPF contributions) of full-time employed residents is $4,563 per month. In short, many Singaporeans are in the 7% tax bracket or under. This has not even taken into account tax reliefs to bring down the tax bracket even further to 3.5% or even 2% tax bracket.
You would probably be doing very well to be in the high end of the 15% tax bracket or annual earning of $159,999. This translates to a salary of about $13,333 per month (without bonus) or $10,667 (considering 3 months bonus) per month. I thought I would use this higher-end case as an example for discussion.
Consider a Singaporean man in his early forties having phased into MINDEF Reserve (MR) and earning an annual salary of $159,999. He has also maxed out his CPF SA by RSTU cash top-ups in his early thirties. Possible tax reliefs he can employ for his income level:
|Tax Relief type||Tax Relief Amount|
|Earned Income Relief|
(Below 55 years old)
|Parent relief (for 1 parent, |
taxpayer does not stay with dependant)
The chargeable income is now $116,299 or brings him to 11.5% tax bracket. It would be a tall order to bring it down 7% tax bracket by maximising $80,000 tax reliefs: $159,999 – $80,000 = $79,999.
Nonetheless, the above table do not include other possible scenarios for tax reliefs to further bring down the chargeable income e.g. having children: Working Mother’s Child relief, Grandparent Caregiver relief, Foreign Maid Levy relief, Qualifying Child relief and even Parenthood Tax Rebate.
Some people feel that it is not as worth initiating RSTU cash top-up to your SA early in your work life, as low tax bracket means you don’t seemed to enjoy the higher tax savings that you might at a higher tax bracket later in life. At 3.5% tax bracket early in your career for example, you only enjoy $7,000 X 3.5% = $245 in tax reliefs.
The point I wish to make here is that it is not the end of the world when your SA reaches FRS. At 11.5% tax bracket, he is missing out on $7,000 X 11.5% = $805 tax reliefs annually; at 7% tax bracket, $7,000 X 7% = $490 tax reliefs. Even if we look at the highest tax bracket of 22%, he only missed out on $1,540 for not being able to RSTU cash top-up his SA.
Comparatively, if his SA is maxed out at prevailing FY2020 FRS of $181,000, the interest earned (4% p.a.) is $7,240.
To me, it does not make sense to defer your RSTU cash top-up your SA to FRS, if it does not yield any real advantages. The earlier one reaches FRS in his SA, the faster he allows the nature of compounding interest to take over.
Is deferring of RSTU cash top-up to SA being overrated to you?