Tax Planning Tips for Individuals and Companies in Singapore

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Tax Planning Tips for Individuals and Companies in Singapore

With the end of yet another financial year closing in, now is the final chance for both individuals and companies in Singapore to get their 2019 tax planning well organised! The dawn of another calendar year means that tax season is fast approaching, and come April, you will have to file your income tax returns to the Inland Revenue Authority of Singapore (IRAS). In one way or another, you as an individual, and your business (if you have one) will be subject to taxes.

For individuals, don’t fall for the misconstrued idea that only the wealthy pay taxes to the government. The bottom line is that if your income exceeds the tax-rate minimum threshold of SGD$20,000 per year, you are mandated to pay individual tax. For companies, each is required to pay corporate tax on any chargeable income derived from Singapore or foreign income remitted into Singapore irrespective of tax-residency status according to the Income Tax Act.

The problem comes in when you are unable to make proper financial management strategies to plan for your tax payments. Tianlong Services presents you with proven strategies to help you plan tax payments for your personal income and that of your business.

The following are 5 key tax planning tips that we think you should know:

Voluntarily Top-Up Your CPF Accounts

You might be thinking, why should I set aside a chunk of my hard-earned money when my income is so little that I can barely save some?

On one hand, you need a plan to save for your retirement and that of your family members. If your plan is to keep money in a savings account or invest it in any other interest-earning scheme, you are better off topping up your CPF Special Account as well as those of your loved ones.

Why? Every amount deposited in the CPF Special accounts (yours or for your parents, grandparents, spouse or siblings) automatically makes you eligible for a dollar-for-dollar tax relief for your income tax. Besides earning a 4% annual risk-free interest, you also qualify for up to SGD$14,000 CPF Cash Top-up Relief per Year of Assessment (YA): SGD$7,000 for self, and SGD$7,000 for your loved ones.

Fund A Registered Tax-Deductible Charity

You are eligible for tax deductions when you contribute cash to an approved institution of Public Character (IPCs). As a donor, you are allowed to claim tax relief of up to 250% of the amount donated. However, it is advisable to give donations if you are in the high-income bracket because tax relief amounts for the ordinary Singaporean with average earnings is negligible. High-income individuals can enjoy massive cuts to their chargeable income.

For instance, if your annual income is only SGD$30,000 and you give 10% of your income ($3,000), your tax bill will be reduced by just SGD$150. However, if your annual statutory earnings amounts to $100,000 and you decided to donate a total of $10,000, your assessable income would only amount to $75,000. This is because the percentage of tax paid by the super wealthy is much higher.

File for Rental Expenses

In Singapore, even though you have to pay tax from your rental income, the IRAS allows you to claim tax reliefs for expenses incurred during the period of tenancy in addition to expenses incurred in the course of generating rental income. These include utility expenses, fire insurance, property taxes, repairs and many others.

Rental income refers to the full amount of rent and related payments you receive when you rent out your property. The amount considered as deductible expenses is determined based on 15% of the gross rental income resulting from renting out the residential property, which simplifies tax filing and reduces the burden of recordkeeping. You can also include mortgage interests on the rental property as a deductible expense.

Claim Employment Expenses

In Singapore, employment expenses are exclusively incurred during the production of your employment income, and may take account of transport expenses, entertainment expenses, travel expenses, data, mobile recharge for calling clients, and other subscriptions paid to professional bodies. You should claim such expenses if:

  • They were incurred while carrying out your official duties;
  • They were not reimbursed by your employer; and
  • They are not capital or private in nature.

To successfully claim them, you should keep proper records of all expenses incurred for 5 years using supporting documents, such as invoices, receipts, vouchers, and any other relevant documents. Estimates and improper records are unacceptable by the IRAS. If you have the required supporting documents, you will be compensated as employment expenses deductible tax.

Claim Profitable Business Expenses

For self-employed individuals, such as business entrepreneurs, freelancers, hawkers, and private tutors, evading tax is still an offence.  However, those who meet the qualifying conditions set are eligible for tax deductions for regular business expenses, capital allowances, PIC, medical expenses, and many others because they also incur various expenses as they earn their income. To qualify for these claims, you must use supportive documents to show that they are directly associated with your business.

Examples of expenses that can be claimed as tax deduction include advertisements, electricity, human resources, transport costs, IT maintenance fees, etc. However, it is important to note that personal expenses, such as CPF contributions, machinery, and medical expenses are excluded in the claim since they are incurred by both employed and self-employed.

Conclusion

Proper tax planning is one integral component of these strategies that should never be ignored. The above are general tips for planning your tax payments. If your tax situation is unique, or if your needs are more specific, consider consulting a Singapore tax specialist like Tianlong. We look forward to hearing from you.

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