How to reduce your taxes

By BJ Ooi AND Dave Loh

MANY people tend to focus only on investment when planning their finances. But it is equally important to consider your tax strategy, as income taxes can have a direct effect on your net disposable income.

Tax planning is not something that applies only to wealthy individuals. As 2009 draws to a close, you may wish to consider the following tax tips still available to you before Dec 31.


While these tips may help you to reduce your income tax bill for the Year of Assessment (YA) 2010, do note that they are general in nature, and you should consult your tax adviser about your particular situation.

Claim applicable reliefs

First, remember to claim any applicable relief in your tax return.

If you are a Singapore resident and have met the qualifying conditions, you may be entitled to claim tax relief as applicable to your situation. Examples include earned income relief, wife relief, child relief, parent relief and foreign maid levy relief for married female taxpayers.

Supplementary Retirement Scheme (SRS) contributions

The SRS is a voluntary retirement savings scheme that allows individuals to enjoy tax relief for the year in which the contributions are made to their SRS account.

Participation in SRS is available to Singaporeans, Singapore permanent residents and foreigners, and is subject to different contribution ceilings. For 2009, SRS contributions are capped at $11,475 for Singaporeans and permanent residents, and $26,775 for foreigners.

Funds in the SRS account can be used for selected investments, such as fixed deposits, insurance products and unit trusts.

In general, 50 per cent of total SRS distributions will become taxable on an individual contributor's retirement for Singaporeans and permanent residents. For foreigners, this is after the minimum 10-year holding period.

However, withdrawals can be staggered over 10 years to enjoy more tax savings.

Premature distribution is normally taxable in full, with a possible 5 per cent penalty.

Central Provident Fund (CPF) top-up

Under the CPF Minimum Sum Topping-Up Scheme, you can claim tax relief for the cash top-up made to your spouse or siblings who do not have income exceeding $2,000 in the year preceding the year of top-up, or to your grandparents or parents. For the YA 2010, the maximum amount of tax relief is $7,000.

In addition, you can claim separate CPF cash top-up relief if you or your employer have made cash top-ups to your own Minimum Sum under the CPF Minimum Sum Topping-Up Scheme. The maximum amount of tax relief is $7,000.

CPF contributions for self-employed

If you are a self-employed person who has made Medisave and voluntary CPF contributions in 2009, you may claim tax relief for your CPF contribution of up to 34.5 per cent of your net trade income assessed.

This is subject to the lower of the CPF relief capped at $26,393 for YA 2010, or the actual amount contributed by you.

Donations to approved charities

You can claim tax relief for cash donations made to an approved Institution of Public Character (IPC) or Qualifying Grant-making Philanthropic Organisations.

Besides cash, donations to IPCs can take the form of Singapore-listed shares, or unit trusts that are ready for trade in Singapore, as well as land and buildings.

To encourage greater charitable acts in 2009 during the recent downturn, applicable tax deductions for YA 2010 have been enhanced to 2.5 times the amount of donations made this year (that is, calendar year 2009).

If the tax deduction for the donation is more than the income for the year, the donor is allowed to carry forward the un-utilised deductions for a maximum of five years.

Not Ordinarily Resident (NOR) Scheme

If you are a non-resident of Singapore for three consecutive years immediately preceding the year that you have become a resident of Singapore, you can apply for the NOR status for a five-year period starting with that year of residency.

As a NOR taxpayer who spends at least 90 days outside Singapore for business with an employment income of at least $160,000, you can apply for the concession of time-apportionment of employment income. This means you would not be taxed on the portion of employment income that corresponds to the number of business days spent outside Singapore.

If you qualify as a NOR taxpayer earning at least $160,000 during the calendar year, you should review your travel schedule to ascertain whether you can apply for this time-apportionment concession.

Gains from Employee Stock Option Plan and Employee Share Ownership Scheme

If you are granted stock options or share awards by your employer, there are incentive schemes allowing partial tax exemption on the gains from these stock options and share awards.

Under certain conditions, you can also defer paying any applicable tax. You should consult your employer to confirm whether stock options or share awards qualify for the incentives to take advantage of this.

Rental income from property

If you own a rental property, you should know that while the rental income is taxable, you can claim rental expenses to offset the rental income.

There are different types of allowable deductible expenses, for example, mortgage interest, property tax, maintenance fee paid to management corporation, fire insurance and general repairs or maintenance undertaken, such as painting and pest control services.

However, the first time that you rent out your first property, certain expenses incurred to secure the first tenant are disallowed. These expenses include any commission paid to the property agent, advertising and legal costs.

For any subsequent property, your property agent's commission, advertising and legal expenses incurred for securing the first tenant is deductible against the rental income of that property. The agent's commission or costs for renewing the lease for a subsequent tenant is also deductible.

If you own several rental properties, rental losses from one property can be used to offset income from another.

Where the final amount from all the rental properties is a loss, you cannot offset the loss against income from other sources. You may, however, transfer this loss to your spouse if he or she has positive rental income to absorb the loss.

In general, any gains from the sale of property are considered capital gains and not subject to tax in Singapore.

However, the Inland Revenue Authority of Singapore may query the property sale and ask the taxpayer to provide additional information about the transaction to confirm this tax treatment.

Effective tax planning requires you to be aware of any changes to tax laws and regulations that may affect your tax position. You should speak to a tax adviser to determine whether there are any of such changes that you should capitalise on.

BJ Ooi is executive director and head of private client services, and Dave Loh is director at KPMG Tax Services in Singapore. The views expressed are those of the authors and do not necessarily represent the views of KPMG in Singapore

This article was first published in The Business Times.