In Singapore, your income can significantly determine the fate of your payable taxes. The more you earn, the higher the tax, starting at 0% and peaking at 22% for incomes over $320,000.
Tax reliefs are your secret weapons to lower your taxable income, of up to $80,000 per year. For most Singaporeans, this means you can potentially enjoy 100% tax relief if you play your cards right.
Let’s dive into how Tanuj, a real estate agent, employs tax relief measures to maximise his savings.
Understanding Taxes in Singapore
In Singapore, your personal income tax is calculated based on a progressive tax rate system. To calculate your tax, you apply these rates to your chargeable income, which is your total income after deducting allowable expenses and relevant reliefs.
Tanuj, who is a seasoned agent, earns $200,000 in commissions annually. The reality check? He faces a substantial payable tax of $21,150. Ouch.
Here’s the lowdown on how he reduces the amount of cash he hands over to the taxman every year.
Tops Up His and His Parents’ CPF, and His SRS
Although there’s a stigma that you should not top up your CPF because the monies are “locked up” until you are 55 years old, why not save your money for retirement instead of paying it to IRAS, which you will never get back?
Tanuj strategically pads up his CPF and SRS accounts. He tops up $8,000 to both his and his parents’ Special Accounts (SA) and funnels an additional $15,000 into his Supplementary Retirement Scheme (SRS).
The dollar-for-dollar tax relief provides him with a massive $31,000 deduction from his chargeable income.
Not sure whether to top-up your CPF? Here are 4 things you should know before deciding.
Donates to Charity
The Singapore government offers tax deductions for donations made to registered charities.
By donating $2,400 annually to two charities of his choice, Tanuj is reaping the benefits of a 250% tax deduction on the donation amount.
That’s a significant $12,000 in total relief, which proves that giving back to society not only positively impacts the ones you help, but also yourself.
The Parent Relief Scheme
As Tanuj lives with his parents, he smartly leverages the Parent Relief scheme. With $9,000 in tax reliefs per parent, he can claim $18,000 in reliefs.
As long as your parents are above the age of 55 years old, and have an annual income of less than $4,000, you might be eligible for the Parent Relief scheme.
If your parents don’t live with you, you can still claim $5,500 in reliefs per parent, as long as you incur $2,000 in expenses to support them annually.
Power Moves Prove to Be Powerful Savings
With his tax reliefs amounting to $61,000, his chargeable income is greatly reduced to $139,000.
This means he will be billed $10,800 in taxes, instead of $21,150. His savings? $10,350.
Here’s the kicker – he’s also earning up to 5% interest p.a. in his CPF account, all while stashing away more savings for his personal financial goals.
It’s like redirecting funds from his immediate use (left pocket) to a secure vault for the future (right pocket), building his retirement savings over tax payments that won’t come back.
Tanuj isn’t merely relying on tax-smart strategies; he’s also leveraging LytePay. With the flexibility to access his commissions within one business day, he capitalises on tax relief opportunities efficiently. Whether it’s to top-up his parents’ and his CPF accounts at the start of the year, or ensuring he makes his monthly donations promptly, he always has cash on hand.
With LytePay as your ally, navigate tax season strategically. Here are more tax relief and rebates that you might not know of.
Plan early, start early, and witness your tax burdens ease.