They Say Nothing in Life is Certain Except Death & Taxes...
Thank You For Your Contribution to Nation Building
A line even the most nation-loving of us cringe to see. I remember the first year I had to pay my personal income tax. It was a feeling of ambivalence; a curious sense of achievement mixed with the dread of impending parting. Getting a letter from the taxman is almost like a coming of age, that you’ve finally earned enough to be treated as a contributing member of society, yet parting (with your hard-earned moolah) isn’t such sweet sorrow.
Thankfully, the authorities have made this dreaded exercise less painful by simplifying the filing and payment process. This is especially if your employee has opted into the Auto-Inclusion Scheme (AIS) for Employment Income. You won’t even need to declare your employment income information.
Tax Rate x Employment Income =
You would think that filing income tax would be as easy as just keying in your income (or just checking it if your company has opted into the AIS). Well, hold your horses, lad. There are two more important terms you should know when filing taxes.
Assessable Income
Assessable income is the sum you get when you deduct your allowable employment expenses and approved donations from your total income, adding in other income you get outside of your regular job (such as rental income, investment income and trading income). See what’s taxable and what’s not. If you are deriving income from businesses or trade, you may deduct allowable business expenses to arrive at the assessable income.
Chargeable Income
You get your net chargeable income by deducting your personal reliefs and rebates from assessable income. This is the final amount that you will be taxed on.
It’s Not So Bad After All
What this means for you is that, there are several ways to pay less tax.
The more common ones include reliefs for supporting and maintenance of parents (above 55 years old), grandparents and great-grandparents including in-laws.
There are also reliefs given to encourage good personal financial habits. These include reliefs for:
Buying life insurance: Claim for annual insurance premiums paid on life insurance policies bought on your life and the life of your wife. However this relief is counted together with your CPF contribution and capped at $5,000 annually. This also means that if you have contributed more than $5,000 to your CPF, there are no relief available for life insurance premiums. Check if you qualify.
Topping up your or your family members’ CPF accounts: This is meant to encourage setting aside money for basic retirement needs. Note that this tax relief is only for cash top-ups and that the maximum relief is $14,000 (maximum $7,000 for self and maximum $7,000 for family members). There is no relief for cash top-up if the individual/recipient’s full retirement sum (for those below 55 years old) has reached the cap of $161,000. The relief is granted automatically to those who are eligible based on records sent by the CPF Board .
Contributing to Supplementary Retirement Scheme (SRS): Pay less tax while saving for the future. Every dollar put into your SRS reduces your taxable income by a dollar (with a cap of $12,750 and $29,750 respectively in 2015 for a Singaporean/Singapore permanent resident and foreigner). SRS relief is automatically granted based on information provided by the SRS operator. When you withdraw from SRS after 62, only 50% of the amount is subjected to tax. Do note that if you make withdrawals before the age of 62, you will incur a 5% penalty charge and the withdrawn amount will contribute to your assessable income that year!
You also get not only a boost to the heart but tax deductions as well for doing good. Donations made to an approved charity with Institutions of Public Character (IPC) status are tax deductible. But note that not all registered charities are approved IPCs. The tax deduction is 300% (courtesy of SG50) for donations made from 1 January 2015 to 31 December 2015. Find out if your donation is tax deductible.
For contributing to the nation in another way (increasing birth rates), you get a tax break through the Parenthood Tax Rebates which is up to $20,000 per child. Not a bad way to assuage that first few months (if you’re lucky!) of sleepless nights. See the details.
Remember These Few Things For A Stress-Free Tax Filing
Your reliefs/deductions are given based on the preceding year’s activities (e.g. donations, SRS contributions, cash top-ups). So for YA2016, they are based on what you did from 1 January 2015 to 31 December 2015 (both dates inclusive).
Keep records of your activities that qualify you for deductions, such as a log of your business expenses, donations and file of life events documents.
For those relief items that are automatically calculated and granted, you do not need to enter an amount and overwrite what’s in the form. These include Earned Income Relief, SRS Relief, CPF Cash Top-up Relief.
Please file your tax return on time (unless tax day falls on a weekend, you have until 15th April but don’t leave it to the 11th hour!) and please file your tax return even if your employee is participating in the AIS unless you received a letter or SMS informing that you have been selected for No Filing Service.
And Finally
Thank you for your contribution to nation building. :)
Sources: www.iras.gov.sg, www.cpf.gov.sg
