If you think of taxes as a baffling practice that only men in pinstripe suits enjoy, think again. Here’s a quick guide to help you understand and save on your personal income tax in just 5 minutes.
Words by Seng Bingyang
Yay it’s tax filing season! Said no one ever.
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As Benjamin Franklin famously penned, “In this world nothing can be said to be certain, except death and taxes”.
Since we cannot avoid it – and there’s no point in letting this annual activity cause us headaches and heartaches – let us embrace tax season and look for ways to derive some joy out of it. (Although I concede that we might have to look very hard.)
In this article, I’m going to give you a brief overview of your personal income tax and show you how you can save on your taxes through tax planning.
Tax planning is the legal arrangement of transaction to minimise tax. It differs from tax evasion, which comprises illegal ways to reduce or avoid tax.
Remember that tax evasion is against the law! Examples include: under-reporting your income and the omission of income on purpose.
If you are a young working professional and your employer is on the Auto-Inclusion Scheme (AIS), you still need to log in to the Inland Revenue Authority of Singapore (IRAS) Tax Portal to verify the pre-filled income, and declare any additional income (such as rental income or any part-time ventures) that you gain outside of your pre-filled income.
Determine your income
Let’s begin by explaining what constitutes an income.
We can broadly group income into either “Business Sourced Income” or “Non-Business Sourced Income”.
“Business Sourced Income” includes gains from any trade, business, profession or vocation.
“Non-Business Sourced Income” includes gains from any employment (such as salary, bonuses, commissions, allowances and benefits in kind), rents and royalties from property etc.
In general, capital gains on stocks and property are not taxable. Dividends received by shareholders and interests on your financial instruments such as insurance are also not taxable.
Calculate your tax in 4 simple steps
Step 1: Start by adding up the full amount of your income for the year ended 31 December 2014. You will arrive at your “Statutory Income” for the Year of Assessment 2015.
Step 2: Subtract any tax-deductibles expenses (e.g., certain employment expenses) and/or donations made to approved charities and institutions to obtain your “Assessable Income”.
Step 3: Deducting any personal reliefs which you are entitled to will bring you to your “Chargeable Income”. “Chargeable Income” is the final amount your tax payable will be based upon.
Step 4: Look up the Tax Table below to determine your tax payable.
To summarise, here’s a look at what a typical tax computation will look like:
|Year of Assessment 2015|
|Statutory Income (all sources of income)||xxx|
|Less: Tax-deductible expenses and donations to approved charities and institutions||xxx|
|Less: Personal reliefs||xxx|
|(Refer to Tax Table)||xxx|
Tips to reduce your tax payable
As you can see from the illustration above, you may be able to reduce your tax payable when you donate to a cause that matters to you, a deserving bonus on top of making an impact and bringing joy to others.
You can also do so by knowing which reliefs you are entitled to, and applying them when you are filing your taxes.
List of Personal Reliefs:
- Earned Income Relief
- Spouse/Handicapped Spouse Relief
- Qualifying Child/Handicapped Child Relief
- Working Mother’s Child Relief
- Parents & Handicapped Brothers/Sisters Relief
- Grandparent Caregiver’s Relief
- Life Insurance Relief
- CPF Relief
- CPF Cash Top-Up Relief
- Course Fees Relief
- Foreign Maid Levy Relief
- NSmen (Self/Wife/Parent) Relief
[For the full list of reliefs and qualifying conditions, refer to: IRAS Reliefs and Rebates]
As a young working professional, reliefs that you are likely to apply for are namely: earned income relief, CPF relief, and NSmen relief (applicable if you have completed your full-time National Service).
For those who are married, for whatever relief that can be claimed by either of the spouses, it is generally recommended that the one claiming the deduction be the one who holds the higher chargeable income.
Special Tax Rebates can also help to reduce your tax payable.
Unlike tax relief which is deducted from your assessable income to arrive at the chargeable income, a tax rebate is subtracted from the tax payable to arrive at the actual tax payable/repayable.
Think of tax rebates as something akin to the cash rebates from your credit cards, which can be used to offset your monthly bills. Similarly, your tax rebates will help you to offset your tax payable.
You will be pleased to know that as part of the SG50 Jubilee celebration, you will receive an income tax rebate of 50% of tax payable, up to a limit of $1,000, for the Year of Assessment 2015.
This is just a brief introduction to the realm of personal income taxes meant to inject confidence in the tax rookie. If you’re still in doubt, please visit IRAS or approach an expert for professional tax advice.
Nevertheless, I hope that you now have a better idea of the tax filing process. So roll up your sleeves and get to work right away! Tax filing closes soon on 18 April 2015.
Do remember that it is mandatory to keep proper records for a period of 5 years. This is to ensure your income and allowable deductions can be readily ascertained.