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Tax Planning (Part 5 of 8)

>> Friday, February 26, 2010

The objective of tax planning is to arrange transactions to minimize tax legally.

Tax evasion, on the other hand, involves the use of unlawful methods to eliminate tax. It is illegal and punishable by law.

The Basics (Who, What, When, Where, Why, How?)

(1) Who?
Tax residents include:
- A Singapore citizen or permanent resident who resides permanently in Singapore;
- A foreigner who has worked in Singapore for 183 days or more.

(2) What?

- Total Income: Includes income from business, salary from employment and rental income.
- Assessable Income: Total income less deductible expenses and donations.
- Chargeable Income: Assessable income less qualifying reliefs.
- Tax Rebate: The reduction of the amount of tax payable.

(3) When?
It is payable annually on a preceding year basis.

(4) Where?
The location is Singapore.

(5) Why?
Tax is a form of government revenue to implement National objectives like infrastructure, education, security, defense, health care, growing the economy, etc.

(6) How?
The returns need to be filed using the prescribed forms by 31 March.

Deductions to save tax

(1) Expenses
- Allowable employment expenses
- Rental expenses
- Net Annual Value expenses

(2) Donations
- To any approved Institution of a Public Character (IPC) or the Singapore Government that benefit the local community is tax-deductible.
- Qualify for double tax deductions. (2.5x for donations made during the period from 1 January 2010 to 31 December 2010.)

(3) Reliefs
- Course fees relief
- CPF cash top-up relief
- CPF/provident fund relief
- Earned income relief
- Foreign maid levy relief
- Grandparent caregiver relief
- Handicapped brother/sister relief
- Life insurance relief
- NSman (self/wife/parent) relief
- Parent/handicapped parent relief
- Qualifying/handicapped child relief
- Supplementary Retirement Scheme (SRS) relief
- Spouse/handicapped spouse relief
- Working mother's child relief

(4) Rebates
- Parenthood Tax Rebate (PTR) is a lump sum rebate (from $5,000 to $20,000) given to married Singapore tax residents for the 1st child to 5th child and subsequent children.

Areas To Plan

(1) Maximizing CPF Relief
Differentiating ordinary (Max: $4,500) and additional wages (Max: $76,500 - Ordinary wages) in an ideal manner to contribute the maximum to CPF. The contribution above the statutory requirement will be subject to tax.

(2) SRS
Contribute to SRS.

(3) Benefits In Kind
Provision of accommodation, motor vehicle, leave of passage and hotel accommodations by the company tend to have lower IRAS deemed rates compared if the benefit was provided as a cash allowance which is fully taxable.

(4) Separate Assessment
Husband and wife would usually have lower tax liability by electing for separate assessment.

(5) Contribution To Parents CPF Account
Contribute cash towards aged parents under the CPF Minimum Sum Scheme.

(6) Timing purchases and expenses
For purchases and expenses that can be planned for, time them so as to enjoy maximum tax relief. For example, carrying it out on the year with the higher chargeable income or on a following year if the relief has already been fully utilized in the preceding year.


Do note that tax policies are constantly changing and it is important to get the most updated information from the source (i.e. IRAS) to plan ahead to legally minimize tax payable.

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