They say that nothing is certain except for death and taxes. Well, I can add one more thing to this list – Singaporeans who miss out on an opportunity to get money. If the queues for the recent TOTO draws are any indication, Singaporeans are definitely willing to spend their time queuing for the slightest chance of earning millions of dollars.
Well, the following tip I’m going to share with you may not earn you millions of dollars, but it may help you to pay less tax. Because if there’s something else that I’m certain about, it’s that Singaporeans definitely don’t want to pay the government more money than they have to.
Aiyah, I know about tax deductions lah… you get rebates for looking after your parents, right?
Yes, there are a handful of typical tax deductions that most Singaporeans would probably know about. These include:
- Parent Relief, to subsidise maintenance of your parents, grandparents and even your in-laws
- Child Relief, to help support your children under 16 years old or who are full-time students
- Spouse Relief, for those with spouses who are handicapped or whose annual income does not exceed $4,000.
Most of us would already know about these, and are hopefully already claiming the relevant ones every year. But here are 5 tax deductions you probably don’t know about for Year of Assessment 2016 coming up in April this year.
1. Tax Deductions on Employment Expenses
So, you know that your income is taxed. But did you know that what you do for work can reduce the amount of your income being taxed? For example, if you take public transport to meet clients and your employer doesn’t fully reimburse you for your travel expenses, you can actually claim your transport costs as employment expenses? Or if you are paying money to entertain clients and your employer doesn’t fully reimburse you, you can also claim these entertainment expenses?
So for example, if you take a taxi to visit clients, and have a meal with them, and it costs $150, and your employer only reimburses $100, you can actually deduct $50 off your annual income as employment expenses.
The question to ask is, is it worth the hassle to claim these expenses? IRAS expects you to keep complete and proper records of all expenses incurred for 5 years. That means, if you’re claiming for this year, that you’ll have to keep all the receipts and invoices of expenses until 2020. And all this might be a wasted effort, since IRAS may ultimately not request for the supporting documents from you.
All that said, here are the exceptions:
For transport, you cannot claim expenses if you used your own private vehicle
For meals, you cannot claim expenses for food you consumed, or those you had with colleagues
You also cannot claim capital expenses – such as a new laptop bag you bought for your office laptop, since technically the laptop bag is yours and not your employer’s.
2. Tax Deductions on Rental Expenses
If you weren’t aware, any rent payments that you earn from your property is subject to income tax and must be declared in your tax return. However, did you know you can also claim certain expenses like mortgage interest, property tax and fire insurance to help reduce the taxable income?
Now, as with all tax deductions, this can be a little complicated so bear with me. You can claim your mortgage interest, but not your principal home loan repayment. You can claim repairs and maintenance costs but not costs for renovations and alterations. You can claim internet charges and utility expenses, but not those that your tenant has already reimbursed you for.
As you can imagine, this would typically result in a fair bit of paperwork. Thankfully, there is now an option for a simplified claim for rental expenses from this year onwards. With this simplified claim, you now claim your mortgage interest as well as a flat 15% of your rental income.
For example, say you earn $5,000 in rent each month. That’s $60,000 in a year. Assume your mortgage interest if $12,000. You can claim 15% in other expenses, or $60,000 x 15% = $9,000. Therefore, your total taxable rent is now $60,000 – $12,000 – $9,000 = $39,000. It’s so much simpler, and you don’t have to produce any paperwork, unless of course, you believe that your claimable expenses total more than 15%.
3. Tax Deductions on Donations
Have you been generous in the past year? Your donations, in cash and kind, may make you eligible for tax deductions of 3 times the amount you donated, because of SG50. Of course, to qualify for a tax-deductible donation it’ll need to be to an approved Institution of Public Character, are for local purposes, and should not provide any benefit to you in return.
You shouldn’t need to do anything to apply for the tax deductions. The Institution of Public Character you donated to should have handled all the administrative work and it should be reflected in your tax assessment. Of course, if you made an anonymous donation, you shouldn’t be expecting any tax deductions.
Like the previous tax deductions, calculating tax deductions for donations means that your annual income will be taxed, less the amount you donated. That means that if your annual income is $50,000 and you donated $5,000 last year, then your taxable income for last year will be $50,000 – ($5,000 x 3) = $35,000. It does not mean that the amount of taxes you pay will be $5,000 less.
4. Parenthood Tax Rebate
All you lucky families who had SG50 babies last year? There’s something else to look forward to besides the various SG50 gifts – the Parenthood Tax Rebate. This is given to encourage us to have more children, so the more children you have, the higher the tax rebate. This tax rebate is $5,000 for the first child and $20,000 for the third or subsequent child born from 2008 onwards.
Note that this is a one-time tax rebate per child and should be claimed in the child’s year of birth or year of adoption (assuming the adopted child is younger than 6 years old). Also note that the rebate amount is supposed to be shared between the two parents, and can be carried over to subsequent years.
For example, if your first child is an SG50 baby and your tax payable for last year is $1,000, then you can use part of the $5,000 to offset your taxes so that you don’t need to pay a cent this year. The remaining $4,000 can help your spouse offset his taxes, and can be carried over to the following year.
To apply for the Parenthood Tax Rebate, you will need to include the following information in the appropriate section of the “Total Deductions and Relief” section: the percentage of Parenthood Tax Rebate as agreed between you and your spouse, the child’s order, and the child’s Birth Certificate number.
5. Personal Tax Rebate
(Update 1/3/2016: It’s been brought to our attention that this personal tax rebate is for Year of Assessment 2015, which happened last year. There is no personal tax rebate for 2016. Apologies for the inconvenience.)
Just in case you forgot that it was SG50 last year, here’s another happy consequence of our 50th year of independence. All of us who have to pay taxes will get a tax rebate of 50% of tax payable, up to a cap of $1,000. Even better, you do not need to apply for this rebate. It will be automatically computed by IRAS and given to you.
Of course, this will only be calculated after all the other tax deductions, but before the Parenthood Tax Rebate.
For example, if your tax payable after deductions is $1,000, you will get a tax rebate of 50% or $500. You only need to pay $500 in taxes. If your tax payable after deductions is $2,000, you will get a tax rebate of 50% or $1,000.
But if your tax payable after deductions is $3,000, then 50% of that is $1,500, which is above the $1,000 cap. So you will need to pay $2,000 in taxes.
Do note that this is a one-off tax rebate, to celebrate SG50. While there was a similar one for YA 2013, it’s anyone’s guess when the next one will be. It’ll definitely happen within the next four years, if you get what I mean.
Don’t look down on these tax deductions!
Big or small, these tax deductions and rebates will go some way in reducing your taxable income. And this is especially important if you’re on the border of a tax bracket – reducing your taxable income from $40,000 to $30,000, for example, could mean the difference between paying $550 and $200. And reducing your annual income from $30,000 to $20,000 could mean the difference between paying $200 and nothing at all.
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