Income tax is one of the many ways which is being used to fund government operations. In Singapore, you will be taxed in March/April on your income if you earn more than $20,000 annually. This includes bonuses and rental income, but excludes dividends, investment gains, and CPF contributions (list of taxable and non-taxable income here). The income tax rate increases progressively with your income, with the highest rate being 22%. In order to reduce the amount of income tax paid, you will have to lower your chargeable income. This can be done by increasing your tax relief amount.
The purpose of tax relief is to acknowledge that you are contributing to Singapore, be it in the form of donations, planning for your own retirement to not burden the economy, or starting a family to increase the country’s population. These tax relief amounts are subsequently deducted from the taxable income, with a maximum of $80,000 of tax relief. Read on to find out what are the tax relief solutions that are also applicable for foreigners, Permanent Residents (PR), and Singapore Citizens (SC) alike.
Income tax relief solutions that are applicable for foreigners
Not to be confused with the Central Provident Fund (CPF), Supplementary Retirement Scheme (SRS) is an opt-in scheme which is applicable to all tax residents in Singapore above the age of 18. It aims to motivate individuals to plan for their retirement, and to go beyond the compulsory CPF for PR and SC. However, unlike CPF’s interest rates, the interest rate for SRS is fixed at a low 0.05% per annuum currently.
In order to be eligible for SRS tax relief, individuals have to make their contributions before the cut-off date (may vary according to different SRS operators). The maximum amount of SRS contribution for foreigners is $35,700 annually, and this is in proportion to the amount of tax relief that you will receive. This tax relief will be processed automatically.
Life insurance ensures that your family will be able to cope financially in the event that an unfortunate event happens to you. In addition, it also provides tax relief for the group of individuals who have paid for annual insurance premiums, of up to $5,000.
To qualify for the insurance relief, the life insurance must be paid for yourself, or for your wife if you are a married man. Accident or health policies do not qualify for this tax relief. Your total employee CPF contribution, employee voluntary MediSave cash contribution, and self-employed MediSave/voluntary CPF contributions must be less than $5,000 too.
The amount of tax relief awarded will be the lower amount between (1) $5,000 minus your CPF contribution or (2) up to 7% of the life insurance value. Individuals are required to claim their Life Insurance Tax Relief on Singpass.
Individuals who have been upgrading their skills to enhance their employability are able to claim for tax relief under Course Fees Relief. Courses that qualify for this relief must be provided by a Accounting & Corporate Regulatory Authority (ACRA) registered entity and the skills or knowledge acquired should be applicable in an industry or current/new employment. Courses for general skills/knowledge or are taken up for recreation/hobby/leisure are not eligible for tax relief.
Under the Course Fees Relief, individuals can claim on aptitude test fees, registration fees, tuition fees, and examination fees, up to a maximum of $5,000 per year. There is no limit on the number of courses that can be claimed for this relief, but this relief is not processed automatically. Individuals have to claim for this via Singpass.
As long as you are employed (or self-employed), you will be eligible for the Earned Income Tax Relief. The relief amount varies according to your age and taxable earned income – individuals below 55 years old, $1,000; individuals between 55 to 59 years old, $6,000; and individuals aged 60 and above, $8,000. However, if your taxable earned income falls below the relief amount in your age group, the relief will be capped at your taxable earned income.
Individuals who are assessed to be physically or mentally challenged will be given a higher Earned Income Relief. Those who are aged below 55 have a maximum claimable amount of $4,000; between the age of 55 to 59, $10,000; and above the age of 60, $12,000. Similarly, if the taxable earned income falls below the maximum claimable amount, the relief will be capped at the taxable earned income.
The Earned Income Relief will be processed automatically based on an individual’s eligibility, unless you are applying for the higher Earned Income Relief. Details on how to apply for it can be found here.
FDWL relief is only applicable for married/divorced/widowed women who have employed a Foreign Domestic Worker (FDW). For the 1st domestic helper, the levy rate stands at $300 per month. It increases to $450 for the subsequent FDWs employed. Additionally, women can claim twice the total FDW levy on each domestic helper.
For example, a domestic helper was hired from January to December (12 months) and an additional FDW was hired from April to December (9 months).
Women who are claiming for this tax relief for the first time are required to file for it via Singpass. It will be automatically granted in the subsequent years.
For those who are unsure if you are eligible for a certain tax relief, you can simply use IRAS’ relief checker to check your eligibility. By reducing your tax chargeable income, you can potentially reduce your total tax amount by more than 50%!